The 7.5 per cent decline in the last one month or so comes on the back of 36 per cent gains over the previous 16 months. A sell-off by foreign portfolio investors  (FPIs), escalation of conflict in West Asia, weak corporate results for the second quarter of the current financial year and deployment of funds into a series of primary market issues are reasons for the sharp fall, market participants said.

Among the major global market indices, India has emerged as the biggest loser over the last one month. Between September 26 and October 25, major global indices that witnessed a fall include Sensex (7.5 per cent), FTSE (0.25 per cent), Nikkei (2.41 per cent) and Bovespa (2.21). On the other hand, indices that have surged in the last month are Shanghai (9.99 per cent), Hang Seng (3.85 per cent), DAX (1.21 per cent) and Dow Jones (0.55 per cent).

While the Sensex surged 36 per cent between May 30, 2023 and September 26, 2024, it declined by 7.5 per cent between September 26 and October 25.

Some factors that market participants point to for the fall are money flowing from the secondary market to the primary market and the possibility of FPI funds flowing from India to China in the wake of a significant rise in Chinese markets.

“As conditions have changed, market returns should now moderate and there is a dearth of meaningful pockets of undervaluation. The recent sharp up move in Chinese markets after a period of significant underperformance could lead to FPIs diverting flows from India in the near termChennai Investment. Coupled with the large pipeline of stocks, a cautious approach is pragmatic,” said Prashant Jain, CIO and fund manager, 3P Investment Managers.

G Chokkalingam, Founder & Head of Research, Equinomics Research Private Ltd, said the sell-off by foreign investors was also due to booking profits after the Sensex and the Nifty touched all-time highs and as the rupee depreciated to an all-time low of 84.07 on October 14.

FII outflows stood at a record Rs 85,790 crore in October so far — the highest in a month in calendar year 2024. Domestic institutional investors pumped in Rs 97,090 crore, but despite such strong support, the indices plummeted in October.New Delhi Investment

Weak performance of corporates in the second quarter also weighed on investor sentiments.

An initial analysis of corporate results for the second quarter, announced so far, shows that India Inc’s growth rates in revenue and profits have taken a hit. The growth rate in net profit of 502 companies declined to 4.1 per cent at Rs 1,34,468 crore in Q2 of 2024-25 as against 37.8 per cent (Rs1,29,167 crore) in the same period of last year, according to data compiled by Bank Baroda Research. Sales growth of these companies stood at 7 per cent at Rs 11,12,434 crore in Q2 of 2024-25 as against 6.8 per cent (Rs 10,39,256 crore) a year ago.

Over the last one month, small- and mid-cap stocks have also tanked over 8 per cent on concerns over higher valuation and as retail investors pulled out money from the secondary market to invest in ().

“Many individual mid and small stocks have crashed 20-30 per cent because of the valuation problem and shortage of liquidity in the hands of retail investors as a lot of money has gone to the primary market,” said Chokkalingam.

Analysts are hopeful of recovery in the market within two months as India’s growth story continues to remain robust. “We continue to remain sanguine about the medium to long term prospects of the Indian economy, corporate profits and markets, albeit with significant moderation in return expectations,” said Prashant Jain of 3P Investment Managers.