Markets in freefall: Low volumes, FII pullouts ship indices crashing on Monday

On a day when buying and selling volumes have been low, the Indian markets continued their downward spiral for the fifth straight session on Monday. Benchmark indices slid greater than 1% every to their respective eight-month lows, wiping out a staggering ₹4,34,579 crore in investor wealth in a day.

Complete turnover on NSE—at ₹71,947.32 crore—was its lowest in almost 4 months. Consultants say in such conditions, it takes much less effort to maneuver the market, making value swings extra exaggerated.

On the similar time, overseas traders additionally continued to tug out monies. On Monday, overseas institutional traders (FIIs) offloaded a internet ₹6,286.70 crore, whereas home institutional traders (DIIs) stepped in with internet purchases of ₹5,185.66 crore.

Benchmark Nifty50 ended the day at 22,553.35, down 1.06%, whereas the BSE Sensex settled 1.1% decrease at 74,454.41. In the meantime, the broader market additionally declined—Nifty Midcap 100 fell 0.9% and Nifty Smallcap 250 dropped 1.2%.

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In the meantime, over the previous three months, the Nifty50 has been the second-worst performer amongst rising markets, slipping 5.6%. The one index to fare worse is Indonesia’s Jakarta Composite, which has declined 6.2%, in response to Bloomberg information.

The challenges

The market downturn has created a big hole from file highs throughout indices. The Nifty Smallcap 250 is trailing 22% beneath its all-time peak, whereas the Nifty Midcap is lagging by 18%. In the meantime, the headline indices aren’t spared both—Nifty50 is down 14% and the Sensex has slipped 13% from their respective historic highs.

Consultants warned of stretched valuations, poor company earnings as a consequence of subdued demand, and different challenges for the market as traders search for succour.

Nuvama analysts wrote in a method report on 17 February that hereon, demand can be crucial for earnings. Nonetheless, demand outlook is boring as international restoration is unsure, family incomes are weak, credit score is slowing, and company capex is subdued, whereas fiscal and financial insurance policies haven’t but turned accommodative, they stated.

“Decelerating earnings amid still-high valuations (regardless of correction) warrant warning,” the report learn. The brokerage prefers massive caps over small and midcaps, and has maintained a defensive bias, with non-public banks being the one key cyclical obese.

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Saurabh Mukherjea, founder and chief funding officer of Marcellus Funding Managers, famous that whereas massive caps are nonetheless comparatively inexpensive than small and midcaps, valuations throughout the board seem stretched. Given the slowdown in company earnings and discretionary spending, he believes the market is wanting a bit dear.

To make certain, the Nifty 50 is presently buying and selling at a price-to-earnings (PE) ratio of 21.06, effectively beneath its five-year common of 23.91, in response to Bloomberg information. The Sensex can be trailing its historic valuation, with a present PE ratio of twenty-two.07 in comparison with its five-year common of 25.34.

ICICI Securities in a report dated 22 February indicated that Nifty P/E might rise on the again of Zomato and Jio Monetary Providers changing Bharat Petroleum Company Ltd. (BPCL) and FMCG main Britannia Industries within the Nifty50 on 28 March 2025, as a part of the NSE’s semi-annual index reshuffle.

BPCL and Britannia, with trailing P/E of eight instances and round 57 instances, respectively, shall be changed by Zomato and Jio Financials with trailing P/E of about 320 instances and roughly 96 instances, respectively, as per ICICI Securities’ report. “This might inflate NIFTY50 P/E by 2.5% on a trailing foundation from 22.1x to 22.6x,” the report stated.

In line with Sumit Jain, deputy chief funding officer at ASK Funding Managers, key components contributing to market uncertainty embody international commerce instability and the sluggish restoration of India Inc.’s revenue development.

He acknowledges that Indian equities could face some near-term bumps however stays bullish on the long-term outlook. Not like different markets, he believes India has the potential to maintain development over an prolonged interval.

Wanting forward

Nitin Raheja, govt director at Julius Baer India, believes {that a} rebound in company earnings would be the key to restoring investor confidence and reversing the present downtrend. Raheja additionally believes large-cap shares provide a safer funding guess now, as mid- and small-cap corporations could face additional challenges forward.

At a time when the headline indices have taken a success, the broader market didn’t see a comparatively steeper fall in the present day, famous Anirudh Garg, companion and fund supervisor at Invasset PMS. This, he believes, is “an indication that traders are already dipping their toes again into small and midcap shares”.

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In the meantime, Neelesh Surana, CIO, Mirae Asset Funding Managers (India) stated, “We count on GDP development, earnings, and markets to stabilize over the following few quarters, as important actions have been taken on each the fiscal and financial fronts”. He feels GDP normalization shall be pushed by greater execution of presidency capex, higher agri-output, and stability in consumption pushed by tax lower in addition to ongoing reductions in rates of interest.

Some stability in earnings together with affordable valuations, might assist arrest FII promoting, which has been primarily pushed by the altering macros within the US because of the new regime.

Jain of ASK likes sectors associated to discretionary spending and manufacturing as he sees sturdy alternatives in these industries.