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How sharp has this stock market correction been?

23 Jan 2025 , 07:11 AM

IS THIS CORRECTION OVER OR IS THERE MORE TO COME?

The moment the markets start falling, one of the first questions you encounter is; whether it is the end of the rally. The current rally has been going on since the start of 2023, so some amount of cooling was called for. The Nifty and the Sensex peaked out in September 2024 and has since been under pressure. Incidentally, that is also the period when the FPIs turned net sellers with a vengeance and the Indian rupee also came under pressure. The rupee weakness and the Nifty weakness, in a sense, have played on each other.

It is hard to say, if the correction is done and dusted, but one can argue that most risks are already in the price. For instance, the US elections are over, Trump approach on tariffs is evolving, central bank policy looks stable, geopolitical risks in the Middle East & West Asia are waning and oil is not such a big macro challenge. India still has to address challenges like valuations, urban consumption, profit growth, and input costs; but these are largely internal challenges that can addressed with internal policies. First, the colour of the market fall!

HOW BAD HAS BEEN THE FALL IN THE MARKET?

When we talk about the fall in markets, our evaluation is normally restricted to the Nifty and the Sensex. However, these are generic averages and hardly give out the real picture. The table below captures the extent to which the key indices have fallen from their peak.

NSE Index Current Value # Peak Value Fall from Peak
NIFTY HEALTHCARE INDEX 14,113.50 15,108.80 -6.59%
NIFTY IT 42,590.70 46,088.90 -7.59%
NIFTY BANK 48,724.40 54,467.35 -10.54%
NIFTY 50 23,155.35 26,277.35 -11.88%
NIFTY PRIVATE BANK 23,965.95 27,280.60 -12.15%
NIFTY MICROCAP 250 23,136.35 26,476.90 -12.62%
NIFTY MIDCAP 100 53,113.50 60,925.95 -12.82%
NIFTY TOTAL MARKET 12,064.65 13,842.60 -12.84%
NIFTY SMALLCAP 100 17,172.55 19,716.20 -12.90%
NIFTY CONSUMER DURABLES 37,752.35 44,426.55 -15.02%
NIFTY FMCG 55,596.05 66,438.70 -16.32%
NIFTY INDIA CONSUMPTION 10,840.05 13,057.60 -16.98%
NIFTY MNC 27,164.80 32,841.15 -17.28%
NIFTY METAL 8,470.25 10,322.05 -17.94%
NIFTY COMMODITIES 8,018.05 9,896.35 -18.98%
NIFTY NEXT 50 62,865.60 77,918.00 -19.32%
NIFTY AUTO 22,274.35 27,696.10 -19.58%
NIFTY OIL & GAS 10,757.00 13,607.20 -20.95%
NIFTY CPSE 5,992.55 7,661.90 -21.79%
NIFTY PSU BANK 6,244.60 8,053.30 -22.46%
NIFTY REALTY 865.05 1,157.35 -25.26%
NIFTY INDIA DEFENCE 6,134.80 8,302.05 -26.10%

Data Source: NSE (# closing value on 21-Jan 2025)

Here are some quick readings from the data sheet above.

  • Dollar defensive sectors like healthcare and IT have fallen the least from the peaks, largely because the dollar impact has been positive on these sectors.
  • If you look at sectors at the bottom; Defence, Realty, PSU Banks, and CPSEs have fallen more than 20% from the peaks. These are also the names that led the earlier rally.
  • Normally, in any market fall, the drawdowns are much larger in the mid-caps and small caps. However, that has not been the case in this market correction.
  • The one theme that has been hit hard is the consumption theme (urban demand), with the FMCG index and the Consumer Durables index falling over 15% from the peak.
  • One of the reasons Nifty has not fallen as much as the other indices is the salutary impact that the IT and Healthcare index have had on the Nifty overall.

While domestic investors have seen a sharp fall from the peak, the fall has been much sharper for the global investors. Here is why.

WHY THE FALL HAS BEEN HARDER FOR GLOBAL INVESTORS

For the global investors, the biggest challenge is to earn positive returns in dollar terms. For instance, if they earn 12% on the Nifty portfolio, and if the rupee has hardened against the US dollar by 2%, then the effective dollar returns for the global investor would be around 14%. However, the tables fully turn when both work against them, as has been the case in the current market scenario.

Let us look at global investor returns from India since September 2024 on the Nifty. Between late September 2024 and January 2025, the USDINR has gone from ₹83.5/$ to ₹86.5/$. That is an approximate rupee depreciation of -3.6%. The Nifty has fallen -11.88% from the peak levels in late September. To that, if you add the -3.6% depreciation in the rupee against the dollar, then in dollar terms, the global investors like the FPIs are actually down -15.48% from their peak portfolio values. That explains why FPIs are in a hurry to sell!

Related Tags

  • 52WeekHigh
  • 52WeekLow
  • LargeCap
  • MarketReturns
  • Midcap
  • nifty
  • sensex
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