Sensex, Nifty Decline 10%: Correction Phase Grips Market as FIIs Exit

The Indian stock market has entered a phase of correction and consolidation, with benchmark indices Nifty and Sensex retreating by nearly 10% from their recent peaks, according to market experts.

Over the past week, the Nifty has displayed consistent weakness. After sharp declines on Tuesday and Wednesday, the index continued its downtrend in a range-bound session on Thursday, closing 26 points lower. The market opened on a cautious note, attempted a minor recovery in early trade, but failed to sustain momentum.

Sentiment and Volatility

The correction has been fueled by weaker-than-expected Q2 FY25 corporate earnings and persistent outflows of foreign investments. Additional pressure stems from domestic CPI inflation rising to a 14-month high of 6.2%, a strengthening dollar index, and climbing U.S. 10-year Treasury yields.

These factors have heightened market volatility, with investors moving away from riskier assets amid concerns over stretched valuations unsupported by earnings growth.

Vinod Nair, Head of Research at Geojit Financial Services, noted that premium valuations without corresponding earnings growth are unsustainable, leading to a rush to unwind risk positions.

Outlook and Predictions

Nagaraj Shetti, Technical Analyst at HDFC Securities, pointed out that the market requires stronger technical evidence for a potential reversal. He cautioned that a decisive drop below 23,500 could push the Nifty further down to the 23,200–23,000 range in the coming week. On the other hand, a sustainable move above the 23,700–23,800 zone could trigger a significant recovery.

Despite the current challenges, optimism persists for the second half of FY25, driven by expectations of increased government spending, a strong monsoon, and improving rural demand. While the near-term outlook remains cautious, battered value stocks may attract bottom-fishing activity as investors look for opportunities amid consolidation.

The focus going forward will be on the developments from the Donald Trump administration in the US and its implications towards the emerging markets (EMs). The policy proposals are likely to add upward pressure on US inflation, which may impact the future Fed rate cut trajectory.