Sensex loses 800 points: How investors can stay safe in a volatile market

Investors faced a tough week on Dalal Street with both Sensex and Nifty heading for weekly declines of almost 7% each.

On Friday, the S&P BSE Sensex index fell by 800 points during intraday trading, dropped below the 80,000 level for the first time in two months. At around 1:40 p.m., it fell 821.20 points to 79,243.96 while the NSE Nifty50 fell 299.40 points to 24,100.

Broader market indices, including mid- and small-cap stocks, also bore the brunt of the market downturn. Most small-cap indices fell more than 2% during the day, fully reflecting the nervousness on Dalal Street.

This year’s pre-Diwali period has been particularly challenging for benchmark indices, with the Sensex and Nifty indices heading towards their steepest October declines since the Covid-led crash in 2020.

BLOOD DECODING ON THE MARKET

According to experts, many factors contributed to the market turmoil, and one of the most pressing problems is intense selling by foreign institutional investors (FIIs).

“There has been no respite from FII selling of local equities this month, which has created uncertainty among domestic investors,” said Prashanth Tapse, senior vice-president (research) at Mehta Equities Ltd.

FII outflows have touched nearly Rs 1 lakh crore so far in October, with many investors focusing on the Chinese market after the stimulus announcement.

Other contributing factors include rising inflation, weaker second-quarter earnings, the upcoming U.S. presidential election and increased tensions in the Middle East. “Market sentiment remains tense ahead of the US presidential elections scheduled for November 5,” Tapse explained, noting the potential impact on key Indian sectors such as IT, pharmaceuticals and textiles. “Cautious perspectives prevail, especially since the companies’ results for the second quarter were disappointing.”

WHAT SHOULD AN INVESTOR DO?

According to Dr VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, the recent downturn suggests a change in the long-standing market trend.

“Based on recent market movements, there is a clear change in the long-term market trend,” he noted.

Vijayakumar pointed out that the ‘buy on the dip’ strategy, effective since the Covid-19 low of 7,511 in March 2020, appears to be less effective in the face of current FII outflows, which have touched Rs 98,085 crore this month.

He added that downward revisions of earnings estimates for FY25 and weak results for the second quarter caused market sentiment to slightly deteriorate. On the other hand, sustained mutual fund inflows are helping domestic institutional investors (DIIs) in absorbing some of the FII selling pressure.

This support, he noted, “could provide resilience to an otherwise weak market where, even after a 7% correction, there is no valuation comfort except in pockets like large-cap financial companies.”

For investors going through this volatile period, Vijayakumar suggests that growth stocks may provide greater resilience.

(Disclaimer: The views, opinions, recommendations and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of India Today Group. You are advised to consult a qualified broker or financial advisor before making any actual investment or trading choices.)