A plunge not seen since Covid outbreak: A $10 billion question mark

India's market faces a perfect storm as FPIs abandon ship, leaving domestic buyers adrift. With Nifty 50 down 6.3% and Midcap 100 sinking 8.11%, will the bleeding stop?

Domestic markets are facing their steepest monthly setback since the global pandemic outbreak in March 2020.

 

On a month-to-date basis, the benchmark National Stock Exchange Nifty 50 is down 6.3 per cent, while the Nifty Midcap 100 and Nifty Smallcap 100 indices have dropped 8.11 per cent and 6.94 per cent, respectively.

 

For the Nifty 50 and Nifty Midcap 100, this marks their sharpest monthly decline since March 2020, while the Nifty Smallcap 100 hasn’t experienced a drop this severe since June 2022. 

 

The downturn comes amid a record Rs 85,000 crore ($10 billion) selloff by foreign portfolio investors (FPIs), despite a buying spree of Rs 95,000 crore by domestic institutional investors.

 

A substantial portion of FPI flows is shifting out of India, where valuations remain above 20x 12-month forward earnings, into China, which trades at only 14x. India’s market capitalisation has shaved off by Rs 37.4 trillion to Rs 437 trillion.

 

Several sectoral and thematic indices have suffered deeper cuts from their peaks, indicating that the pain extends beyond what the headline indices reveal. For instance, the Nifty PSU Bank index is down 22 per cent from its peak in June 2024, the Nifty Auto index has fallen 14 per cent, and the Nifty Energy index is down 13 per cent. In contrast, the safe-haven Nifty IT and Nifty Pharma indices have retreated only 3.2 per cent and 5.1 per cent, respectively, from their peaks.