Decoding the factors driving the recent market downturn since October 2024.
October 2024 marked a turning point. Optimism began to erode as initial Q3 earnings reports revealed a slowdown in key sectors, triggering the first wave of sell-offs.
Rising US interest rates further dampened investor sentiment. Concerns grew about potential capital outflows from emerging markets like India, exacerbating the downward pressure.
The Indian IT sector, a bellwether for the economy, experienced a significant correction. Weakened demand from key international markets raised alarm bells, especially among FIIs.
The Reserve Bank of India's (RBI) efforts to control inflation added to the market's woes. Aggressive rate hikes, while necessary, increased borrowing costs for businesses, impacting future growth projections.
Foreign Institutional Investors (FIIs) turned net sellers, pulling out significant capital. This exodus amplified the market decline and heightened volatility, spooking domestic investors.
While large-cap stocks showed some resilience, mid-cap and small-cap stocks were hit particularly hard. The risk appetite diminished significantly, leaving these companies vulnerable.
Escalating geopolitical tensions in other parts of the world added another layer of uncertainty. Investors sought safer havens, moving away from riskier assets in emerging economies.
The Indian rupee's depreciation against the US dollar further fueled investor anxiety. A weaker rupee makes imports more expensive and can impact corporate earnings for companies with significant foreign debt.
A decline in consumer confidence, reflected in reduced spending, signaled potential economic slowdown. This impacted sectors like automobiles and consumer durables, further weakening market sentiment.
While the market faces challenges, opportunities remain for long-term investors. Understanding the underlying factors and staying informed is crucial to weathering the storm and capitalizing on future growth.