Nifty 50 set to break nearly 30-year record with 5 consecutive months of fall. What’s ailing the index?

Indian Stock Market: What began as a small correction has turned into a massive bloodbath as Indian markets have been falling relentlessly in recent months, making investor sentiment jittery and preventing them from making fresh moves in the market.

The once high-flying stocks, which were consistently hitting new peaks and setting fresh milestones for most of 2024, attracting global attention with their seamless rally, have now been under severe stress, sliding with no bottom in sight.

Since October 2024, the Nifty 50 has closed each month in the red, and it is poised to end the current month on the same note as the unprecedented selling by overseas investors continues unabated. If the index closes in the red in February, which appears certain, it will mark the first time since 1996 that the Nifty 50 has recorded five consecutive months of decline.

This would be also the second-worst monthly losing streak since the launch of the Nifty 50 index in July 1990. Historical data suggest that the Nifty 50 recorded its worst monthly performance in 1995, when the benchmark index faced its longest losing streak of eight months, from September 1995 to April 1996, declining by over 31% during this period.

This downturn was followed by another five months of consecutive declines between July and November 1996, further eroding the index’s market value by 26%. Additionally, the index experienced a monthly losing streak of four months on three separate occasions—October 1991 to January 1992, May to August 1998, and June to September 2001.

In the current month so far, the index has corrected by 4.16%, marking the biggest monthly drop since October 2024, sending the Nifty 50 to trade at an 8-month low.

FPIs selling crosses ₹3.10 lakh crore

The prolonged downturn in Indian markets has been fueled by relentless selling from overseas investors, who have remained net sellers since October, steadily offloading their holdings at an accelerating pace. In just five months (October 2024-February 2025), they pulled out ₹3.11 lakh crore from Indian exchanges, leaving domestic investors to absorb the entire selling pressure.

The shift in sentiment was driven by weak earnings reported by Indian companies in the September and December quarters, which failed to justify the premium valuations these stocks had been holding for an extended period.

On top of that, expectations of a recovery in the Chinese economy, following a series of stimulus measures announced by Beijing, attracted investor interest, as Chinese stocks appeared relatively cheaper compared to Indian equities.

Further, Donald Trump’s trade policies have also made investors jittery, as his policy measures are expected to drive up prices and impact the global economy. The U.S. Federal Reserve has also taken note of Trump’s trade actions, which prompted it to pause the rate-cut cycle in January.

Domestically, the Indian economy has slowed in recent months, as a sharp rise in prices and muted wage growth have led urban consumers to cut back on spending. Additionally, government expenditure has weakened in FY24, prompting the RBI to lower its GDP estimates for the current fiscal year and maintain a cautious outlook for FY26. Reports are suggesting that FY25 GDP may hit a 4-year low.

Both fiscal and monetary measures have been taken recently to boost consumer demand, but they failed to revive the market as global growth concerns overshadowed these positive steps.

Nifty 50, Sensex down up to 14% from peaks

Since reaching their peaks, both indices have been on a slideway path, posting significant losses, with Nifty 50 losing 3730 points from its peak of 26,277, or 14.2%, touched in late September. Likewise, the Sensex has lost 11,376 or 13.23 points from its peak of 85,978.

Twenty-seven constituents of Nifty 50 are now trading 20-44% below their one-year highs. Leading this decline is Tata Motors, currently trading 44% below its recent high of ₹1,179 apiece. Similarly, two-wheeler manufacturers like Bajaj Auto and Hero MotoCorp are trading at discounts of up to 38%.

FMCG giants Nestlé India and Hindustan Unilever have experienced sharp corrections after reporting their December quarter earnings, with both stocks now down around 27% from their recent 52-week highs.

Brace for more volatility

The Indian equity landscape, which successfully weathered global uncertainty following the COVID-19 pandemic, is now witnessing a significant shift in investor sentiment. After an extended period of strong growth, the market seems to be losing its appeal, with investors growing increasingly cautious about future prospects amid both domestic and global concerns.

Amid a weakening domestic and global environment, brokerage firms are slashing their target multiples for the Nifty 50. The latest revision comes from InCred Equities, which trimmed its blended Nifty 50 target to 22,850 (factoring in Bloomberg consensus EPS cuts for Nifty 50) by March 2026F, implying a 2% upside from current levels.

In a bear-case scenario, the firm projects an 8% downside. Earlier, brokerage firm Prabhudas Lilladher had trimmed its base-case target for the Nifty 50 to 25,689, down from its earlier target of 27,172, anticipating extended volatility in the near term. The firm’s bull-case and bear-case targets for the index are 27,041 and 24,337, respectively.

India’s corporate sector is preparing for a cautious yet strategic 2025, as macroeconomic headwinds, slowing earnings growth, and global risks weigh on market sentiment, according to Motilal Oswal Financial Services (MOSL).

India’s economic fundamentals remain strong

Despite heightened volatility in the stock market, the country’s economic fundamentals remain strong, supported by robust capex allocation, India’s emergence as a global manufacturing hub (as an alternative to China), and its demographic dividend, which experts believe could bode well for the economy in the long run.

According to recent estimates by domestic brokerage firm IDBI Capital, the Indian economy is expected to add USD 1 trillion every 1.5 years, reaching USD 10 trillion by 2032. The report highlights that India is on the brink of a significant transformation, set to become the third-largest economy globally by 2030.

The analysis also showed India’s rapid economic growth over the past decade. While it took 63 years, from 1947 to 2010, to reach a GDP of USD 1 trillion, the pace has since accelerated. India reached USD 2 trillion in 2017, just seven years later, and USD 3 trillion in 2020.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.