The Nifty 50 index, which serves as India's benchmark stock market index, is poised to record its longest losing streak in 28 years, dipping potentially for five consecutive months—a phenomenon not witnessed since 1996. If the index finishes this February down, it will mark the first five-month decline since the tumultuous period of the mid-1990s. The market has taken a substantial hit, erasing billions from the portfolios of both retail and institutional investors.
Since October 2024, the Nifty 50 has already registered over an 11.7% decline, with technical analysts pointing to significant selling pressure exerted by foreign institutional investors (FIIs). These entities have offloaded stocks worth more than ₹2 lakh crore during this period. This selling frenzy can largely be attributed to several factors, including the persistent weakness of the Indian rupee, tariff strategies enacted by global competitors, and the resurgent allure of Chinese equities, which have become increasingly attractive to investors.
According to market history, extended losing streaks for the Nifty are rare. The longest previous streak occurred from September 1994 to April 1995, where the index plummeted by 31.4% over eight months. A secondary occurrence still resonates with seasoned investors: between July and November 1996, the Nifty recorded a 26% drop. Comparatively, the current downturn, with its 11.7% dip, appears relatively mild, yet the forecasts remain grim if the trend continues without reversal.
February is shaping up to be particularly harsh, as the Nifty has already exhibited nearly 3% losses this month alone. If it fails to reclaim the 22,850 level, technical analysis suggests the index could slide down to between 22,500 and 22,400, with analysts like Rupak De noting, "Since the end of September last year, the index has been falling, forming a lower top-lower bottom pattern on the daily chart." This indicates market conditions favoring persistent selling on rallies.
The losses being experienced by the Nifty 50 have also raised concerns about retail investor sentiment. Emerging from years of relative market stability and growth, many new retail investors are now facing their first significant downturn. Those who entered the market during the bullish runs and relied on social media influencers for cues are now feeling the sting of the broader market's retreat.
Contributing to this susceptibility is the stark competition from global markets. Many investors are shifting their focus away from Indian stocks toward more favorable conditions seen recently with Chinese equities. Analysts have observed significant rebounds for such stocks following China’s economic stimulus measures announced back in September 2024. The Hang Seng Index, for example, has experienced remarkable growth of 18.7% recently, as opposed to the staggering drop experienced by the Nifty 50.
Given the current trend of "Sell India, Buy China", as described by financial experts, it reflects the growing sentiment among foreign investors. Allocations to Indian equities have slumped to two-year lows as foreign markets appear more enticing under the prevailing conditions. Vaibhav Porwal, Co-Founder of Dezerv, attributes this shift to not only the stimulating measures taken by China but also to the regulatory easing and broader policy support aimed at boosting foreign investor sentiment.
While the Indian markets grapple with these challenges, some experts are advising retail investors not to panic. Adopting a bottom-up stock-picking strategy focusing on quality stocks may offer relief during these turbulent times. Sandip Sabharwal, a well-known investor, sees the current selloff as temporary and states, "FII flows overall, in my view, will reverse for most Emerging Markets going forward. Once they do, India will receive its fair share as it typically garners 18-20% allocations."
Motilal Oswal Private Wealth urges caution, particularly with smaller cap stocks, advising investors to steer clear of micro-cap segments, as expectations of continued pain for this erratic sector loom large. Tax harvesting strategies are also recommended to instill some resilience against market volatility.
Investing strategies should focus on the large-cap segment, where quality selections present potential value amid increasing uncertainty. Given the compounded pressures on markets, combining this with prudent financial management might prepare investors for the turbulent waters still likely to come, as the Nifty heads toward the possibility of five consecutive months of declines. If this trend persists, the historical significance of this potential outcome cannot be overstated, marking it as the first such occurrence since 1996.
Investors need to brace themselves for potential volatility, but opportunities exist for those willing to seize them. With historical precedents as their guide, seasoned market players will be watching the developments closely, hoping for signs of recovery even amid the most challenging conditions.