Investors are unlikely to witness any major fireworks from the stock market ahead of Diwali this year. Both the benchmark indices of Sensex and Nifty have declined over 6% in the month of October, recording their worst monthly performance in over a decade.
There are a few key factors dragging the markets lower:
FII selling pressure: Foreign investors have been net sellers of Indian stocks throughout October, offloading shares worth Rs. 98,000 crores so far. This is putting downward pressure on market momentum.
Weak Q2 earnings: Many companies reported slower revenue growth and margin pressures in the second quarter results. Subdued demand and high inflation impacted business performance.
Rising inflation: Continuously high inflation is a concern area for both businesses and consumers. The RBI has maintained status quo on interest rates but more hikes can’t be ruled out if price rise persists.
Slow economic recovery: Certain indicators show revival in economic activities is still not broad-based. Floods have also impacted some regions, slowing the pace of recovery.
Analysts suggest markets may see consolidation in the near-term until macroeconomic conditions become more conducive for sustained gains. Key support levels are being watched closely for signs of recovery. A pickup in festive demand and good Q3 numbers could aid the market sentiment. But the Diwali week itself may not generate any strong bullishness. Investors are advised to remain cautious for now.
