10 lakh crore wiped out as Sensex, Nifty see worst Diwali in a decade

Indian equity indices faced significant losses, closing lower for the fifth consecutive session on Friday. The benchmark Sensex plummeted by 663 points, or 0.83%, to close at 79,402, while the Nifty dropped 218 points, or 0.9%, ending at 24,180. Both indices have now fallen approximately 8% from their all-time highs recorded on September 27. This downward trajectory reflects ongoing investor anxiety amid a disappointing earnings season for several key sectors.

The decline was exacerbated by lackluster second-quarter earnings reports from major companies. IndusInd Bank saw its stock tumble by 18.5%, which accounted for a substantial 136 points of the Sensex's drop. The bank's earnings report revealed lower-than-expected profits and increased provisions for bad loans, raising concerns about asset quality. Additionally, NTPC experienced a 3% decrease in its share price after reporting a decline in operational performance, reflecting broader challenges in the power sector. Analysts have noted that the overall earnings growth for FY25 could be around 10% or even lower, indicating persistent headwinds for corporate profitability.

Market dynamics were further influenced by the substantial selling pressure from foreign institutional investors (FIIs). Over the past 19 sessions, FIIs have offloaded Indian equities worth ₹98,085 crore, driven by a shift in focus towards Chinese markets following Beijing's stimulus measures. This trend of capital flight has intensified concerns among domestic investors about market stability, particularly as foreign capital plays a crucial role in supporting stock valuations in India.

In terms of valuation, the Nifty 50’s price-to-earnings (PE) ratio currently stands at 22.8, exceeding both its one-year average of 22.6 and two-year average of 22.2. This elevated valuation suggests that investors remain wary about entering the market, as high PE ratios typically indicate overvaluation. Experts emphasize that despite recent corrections, the market still does not present a favorable buying opportunity, contributing to the ongoing selloff as investors reassess their positions in light of weakening corporate fundamentals.

Broader economic factors are also at play, with geopolitical tensions in the Middle East and uncertainties surrounding the upcoming U.S. presidential election affecting market sentiment. Recent developments, such as Israel's military actions against Hamas and discussions of a Gaza ceasefire, have raised concerns about regional stability. Simultaneously, the November 5 U.S. election looms large, with polling indicating a tight race between Kamala Harris and Donald Trump.