On the very first trading day of the week, the Indian stock market witnessed a huge decline. Both Sensex and Nifty 50 fell by about 2%. Midcap and smallcap stocks also fell by more than 2%.
These are the reasons for the decline in the stock market
1. Caution before the US election – There is an atmosphere of fear among investors before the US election. Investors are unsure about the election results. Opinion polls indicate a tough fight between Democratic candidate Kamala Harris and Republican Donald Trump. For the next few days, the market will be focused on the US presidential election at the global level. As the time for the election results comes closer, more instability may dominate the market. However, this period in the market is expected to remain in the short term only. VK Vijayakumar, Chief Investment Strategy, Geojit Financial Services, said, ‘Inflation and Fed’s action will affect the market trend.’
2. High valuation in the stock market – The market has been falling continuously for the last few days. But experts believe that some stocks are still overvalued. According to the stock market platform Trendline, the current PE ratio of Nifty 50 is 22.7. This is more than the average PE ratio of 22.2 of the last two years and is close to the average PE ratio of 22.7 of the last year. Pankaj Pandey, Research Head, ICICI Securities, said, ‘The recent decline has not changed the overall valuation of the market much. High valuations may remain due to the long-term growth and stability of the country.
3. Fed Reserve’s decision – The US Federal Reserve will announce its monetary policy on November 7. Recently, the Fed had cut the rate by 50 basis points. Experts say that the interest rate can be cut by 25 basis points. However, this will not cause much volatility in the market. Experts say that it is expected that the US Fed will cut the rate by 25 basis points, but its effect may be less because, during the US elections, candidates are talking about spending more. This will increase the fiscal deficit and bond yields will increase. This is also not good news for the market.
4. Second quarter results in the stock market – The September quarter results of Indian companies are coming weaker than expected. This has increased the concern of investors. Experts say that there has been a slight decline in the earnings of companies, this is mainly due to commodities, it is affecting the market sentiment at this time. The Indian market is facing a slowdown in earnings growth. According to the second quarter results, Nifty EPS growth may go below 10% in FY25. FIIs may continue selling in view of the weak earnings environment of companies.
5. Technical factor – Experts say that the Indian stock market has tried to get out of the negative trend. But due to the lack of new triggers, it could not succeed. Anand James, Chief Market Strategist, Geojit Financial Services, said that last week the level of 24150 repeatedly held strong, preventing further decline. But the upward momentum was clearly weak. The reason for this was the resistance in the range of 24,470-24,540 and additional obstacles near 24,660-24,770. We expect the market to challenge these levels this week. But the broader trend requires multiple closes above 25,100 to completely end the selling.
