Nifty down for five months in a row, a first in 29 years

With just a day shy of the month close, Indian equity markets will have fallen for five months on the trot by February end, an occurrence last seen 29 years ago. The current fall has been fuelled by relentless foreign portfolio outflows of ₹2.8 trillion from the cash market and their negative stance on the index derivatives segment.

From September-end to 27 February, the Nifty fell 12.65% to 22,545.05. A deeper correction of 26% happened over five months in 1996—from end June through November, when the index tanked 26% through 830.32, owing to tight liquidity, high interest rates and poor corporate earnings.

The current period, too, has been marred by falling market volumes and tepid corporate earnings though interest rates are now in a downcycle.

Aggregate net profit growth of BSE 500, excluding oil marketing companies, remained subdued at 8% year on year in Q3FY25, versus 9% for the first half of the current fiscal with most sectors, barring BFSI, pointing to a sharp slowdown, as per Nuvama.

“Decelerating earnings amid still-high valuations (despite the correction) warrants caution. We prefer large caps over SMIDs (small and mid-cap stocks) and maintain a defensive bias with private banks being the only key cyclical OW (overweight),” said the brokerage in its Q3 earnings review.

Rising bond yields

Another reason for the weak markets is rising bond yields in the US from 3.7% in mid-September to around 4.5% currently owing to rising inflationary concerns over US President Donald Trump’s retaliatory tariffs on US’ trade partners. This has resulted in FPI outflows which have impacted the rupee negatively.

The average daily cash market turnover on NSE has fallen to a 15-month low of ₹88,409 crore so far this month.

Thursday also saw the culmination of the February series of derivatives, which has seen the Nifty futures contract fall for four straight series by 7.2%—a series ends on the last Thursday each month. The index derivative had fallen for four straight series five years ago through March 2020, which marked the outbreak of covid, and saw it tumble a whopping 30%.

Open positions data showed that FPIs continue to remain net short on index futures—Nifty and Bank Nifty—at an aggregate level of 173,534 contracts at the end of the series. This shows that pressure on the market will likely persist, per Kruti Shah, a quant analyst at Equirus. Rollover data will be updated late Thursday evening. 

The Nifty is likely to trade in a range of 22,315-22,885 over the next few days with a bias to the downside, per weekly options data.