The Fall from Euphoria
Dalal Street’s jubilation in September 2024 has quickly turned into despair, with a sharp and prolonged market downturn wiping out nearly ₹94 lakh crore in investor wealth over five months. What started as a routine correction in October escalated into a brutal sell-off, leaving retail investors rattled and market sentiment at its lowest since the COVID-19 crash.
Despite repeated predictions of the Sensex touching 90,000 and the Nifty reaching 30,000, the reality has been starkly different. The Sensex and Nifty have declined by approximately 15% from their September highs, while mid-cap and small-cap indices have plunged over 20%. More concerning is the widespread devastation in the broader market, where the pain is most severe.
Factors Behind the Market Carnage
Several interconnected factors have contributed to this prolonged slide:
- Overvaluation and Froth – Elevated valuations and excessive speculative interest had created an unsustainable rally, setting the stage for a correction.
- Disappointing Corporate Earnings – The weakening earnings growth of Nifty 50 companies, particularly in FMCG and IT, failed to justify high price-to-earnings (PE) multiples.
- Foreign Investor Exodus – FIIs have been shifting capital to cheaper markets like China, where equities appear more attractive.
- Macroeconomic Concerns – Slowing GDP growth, muted domestic consumption, and subdued household spending have raised doubts about India’s economic strength.
- Global Uncertainty – The US slowdown, tariff wars, and the return of Donald Trump’s aggressive trade policies have created an environment of caution.
Corporate earnings have been particularly disappointing. After years of double-digit growth, Nifty 50’s earnings per share (EPS) growth slowed to 5.5% in Q1 and dropped further to 4.4% in Q2, triggering panic selling. Q3 earnings growth remained weak at just 5%, reinforcing concerns that the economy is struggling.
Where is the Market Headed?
Despite signs of a slight economic recovery, the uncertainty over India’s growth trajectory has deterred fresh buying from retail and institutional investors. Historically, market crashes have erased more than 50% of valuations, as seen during the 2008 Lehman Brothers collapse. However, the Indian market has always found a way to recover, albeit gradually.
Currently, the Sensex and Nifty are trading near their historical averages. While this suggests valuations are becoming reasonable, a sustained rebound seems unlikely without a strong earnings catalyst. The road to recovery will be slow, requiring structural improvements in corporate earnings, economic momentum, and renewed investor confidence. Until then, caution remains the best strategy.
Author: This news is edited by: Abhishek Verma, (Editor, CANON TIMES)
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