The market was in complete chaos for most of the day. Nifty did recover nicely, staying above the 23,000 mark, but small caps and mid caps were ruthlessly smashed. FIIs have been aggressively selling, and the question on everyone’s mind is whether we should panic or not. You probably already know the answer, but we’ll still go through the motions and analyze what’s happening.

What we’re seeing right now is that the large caps have restrained themselves during the fall. Even though FIIs are selling large-cap stocks, the large caps themselves are not seeing as much of a decline. On the other hand, mid and small caps, which had exceeded large-cap growth by a wide margin, are now coming back toward the historical average. This reversion to the mean is happening, where large caps are either already there or very close to it, while mid and small caps are still relatively far away from that level. So, this process of mean reversion is ongoing in those segments of the market.

Where is the market headed?

Market Overview

So, where is the market headed? We saw a small bounce today after the drubbing of yesterday. We’re not out of the woods yet, but nobody’s complaining about a 130-point rise today. With more such days, we could potentially recover this entire drubbing in three sessions. Today, Nifty was up by 0.57%, but the trend hasn’t changed. We are still in a downtrend.

Nifty Next 50

While it was a green day for large caps, Nifty Junior still managed to fall by 0.85%, although it did recover from a low of 61,895, almost recovering 1000 points in the second half of the session. It hasn’t broken the previous low yet, but there’s no doubt that it’s still very weak.

Nifty Mid and Small Cap

Mid-caps are testing the previous bottom and are still down 1.25% today, while small caps are also testing the previous low and came back down by 1.6%. Looking at longer-term charts, we can see that mid caps and small caps haven’t fallen as much compared to the June fall in the large cap space.

Nifty Bank Overview

Bank Nifty also made a long-legged candle, coming close to previous lows, but it managed to recover by 0.32%. With very few sessions left before the budget, that could keep us hopeful. I know many don’t have high hopes from the budget, but the markets likely won’t go into the budget with an extreme oversold position. We might see some short covering or position closure before the budget, as you never know; there could be a positive surprise, even if the chances of that happening are slim.

Advanced Declined Ratio Trends

Looking at momentum trends, there were 124 advances and 374 declines, meaning the broader market is still falling.

Nifty Heatmap

TCS, Infosys, Wipro, Tech Mahindra, HCLTech, Sun Pharma, Nestle, Britannia, Hindustan Unilever, HDFC Bank (post-results), ICICI Bank, and the Bajaj twins all saw reasonable gains. On the flip side, power stocks, Tata Motors, Power Grid, Coal India, ONGC, and Bharat Electronics saw losses. The Nifty Next 50 space was completely in the red, with some odd positive gainers like LTIM, Bajaj Holding, Geo Finance, Chola Finance, and Zomato, but overall, it was a tough day for real estate and public sector enterprises. Real estate, in particular, was smashed, with stocks like Lodha and DLF taking a big hit. Other sectors like Adani stocks, GAIL, Tata Power, and NHPC were all down.

Sectoral Overview

In sectoral trends, we saw a mixed performance, with most sectors either up or down by half a percent. Pharma performed the best along with IT, while real estate was completely decimated, down by 4.6%. Public sector enterprise stocks lost 1.6%, energy was down 1.5%, PSU banks down 1%, and metals were off by 0.7%. Looking at the week gone by, metals were the leading sector with a gain of 2.3%, followed by PSU banks with 1.5%, while real estate trailed at -6%. Over the month, real estate is down by 18.4%. It’s a huge decline for real estate stocks.

A key question now is whether these trends in the market will start to affect the physical real estate market. With these kind of signals from the stock market, will physical real estate stagnate? That remains to be seen. Over the past 12 months, pharma is the only sector with gains of more than 20%. Other sectors like IT, FMCG, and autos have seen double-digit growth, while everything else is now in single-digit returns for the year. A significant market cap has been lost, and we may now be nearer to the bottom than to the top. From that perspective, we’re undergoing a time and price correction. It’s impossible to predict when it will end, but it could have ended today as well—nobody knows for sure.

Sectors of the Day

Nifty IT Index

Looking at IT stocks, Wipro, Infosys, TCS, and Tech Mahindra were all up by around 3%. These stocks drove the IT index up by 2.14%, making IT one of the better-performing sectors today.

Story of the Day : FII Selling

Since 24th September, Nifty is down 12%. While Nifty hasn’t seen the same kind of mayhem as the broader market, it still represents only the top 50 stocks, which have probably seen less selling compared to the Nifty Junior, which is down almost 20%. Is the FII selling the primary reason for the fall? Let’s look at the data.

FIIs have cumulatively sold ₹2.48 lakh crores since October 2024, over a period of just four months. Meanwhile, DIIs have pumped in ₹2.64 lakh crores during the same period, which means, on a net basis, there hasn’t been much outflow, as the domestic buyers have been balancing the selling. So why are FIIs selling? There are many reasons, but the primary one is that the US is making a comeback. Since September, US yields have been rising, and the announcement of a likely Trump comeback has led to a euphoric rally in US bonds, equities, and the US dollar. With liquidity flowing into the dollar, US assets are seeing upward momentum. For instance, if you’re getting 6.5% returns on fixed income in India but only 4.5% in the US (with an expected depreciation of 3-4% in the Indian rupee), why would anyone prefer investing in Indian bonds? Similarly, US equities have gained 26-28% this year, while the Indian market, in US dollar terms, is flat after this week’s fall.

Higher US yields are diverting investments away from emerging markets. Bonds are now offering safer and more attractive returns compared to equities, which is causing a reduction in investment towards Indian equities. Additionally, there’s a slowdown in comparative profit growth, with only 4% sales growth year on year. While there have been positive surprises from TCS and Reliance, stocks like Zomato are signaling a slowdown. Inflationary pressures and potential policy changes under Trump’s new administration could further disrupt the rate cut cycle in the US, making bonds even more attractive. The rise in bond yields is likely to attract more funds to the bond market, while equity investments may see reduced inflows.

The US dollar is also decimating the Indian rupee. The USD to INR rate is expected to reach 95, which is fueling expectations that the rupee will weaken further. This expectation of a depreciating rupee is prompting many to exit quickly. Even people who have invested in India are considering selling their investments, waiting for the rupee to hit 90 before bringing their money back. This narrative of a weakening rupee is both pushing money out of India and causing a delay in potential foreign investments.

When can the FII sentiment change? The key metric to watch is a decline in US dollar strength and bond yields. As soon as bond yields in the US start cooling off and the USD begins to weaken, money will start flowing out of the US and into emerging markets like India. Of course, we also need to demonstrate stronger GDP growth projections, and the upcoming budget may play a role in this. If the budget reassures markets and indicates that India remains committed to its growth path, we could see positive changes in foreign capital inflows. The confidence right now is relatively low, with concerns around politics, distribution of funds, and the fiscal deficit nearing 5%. It will be up to the government and finance minister to reassure the market that India is still on track for strong growth.

So, should we really be concerned? Yes, we can be concerned, but market cycles are normal. Corrections and FII sell-offs will stabilize over time. It may take a little while, but history shows that we’ve seen far worse situations in the market. Despite these tough times, people have still made a lot of money from the market. Never forget that markets will give you fantastic rewards, but they’ll also give you a lot of pain along the way. This journey needs to be sustained, and exiting the market, withdrawing your money, or trying to make quick profits through leveraged trades is not the solution. Stick to regular investing in self-correcting instruments. Don’t invest in stocks unless you are confident about their performance. Periodically reevaluate your strategy, whether that means continuing to invest in individual stocks, following a strategy, or giving your money to a portfolio manager. If you avoid making hasty decisions and don’t chase quick money, I’m confident you’ll do well in the long term.

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