The selling in the market just does not seem to end with the Sensex plunging nearly 2000 points in just five days. There are many reasons for the sharp downturn including the massive FII outflows, strengthening dollar and continued earnings disappointment. However, the questions that is worrying everyone is when will the market stop falling? While there may not be a definitive timeline, experts advise watchout for fundamental triggers.
The key factors to watch out for now
Financial Express.com reached out to a host of market analsysts to get a sense of how they expect the markets to pan out going forward-
Trump Tariff woes- The big impact
The escalating Tariff war and the latest 25% Tariff on steel and aluminium imports by US is weighing on market sentiment. No points for guessing it is one of the key reasons for the continued downtrend in the market.
Siddhartha Khemka, Head – Retail Research, Motilal Oswal Financial Services pointed out that the “ Reciprocal tariff is the next thing on Trump’s agenda. All eyes are on how India will be impacted as several sectors may see the effect including pharma, gems & jewellery, IT. With Modi meeting Trump, all eyes are on the possibility of some agreement that can enable level playing field for India. That could calm down market jitters to a large extent. On a more fundamental front, earnings recovery will take time but that’s a definitive trigger. In terms of FII selling, if outflows come down or even if they stop selling consistently, that will be a sign that bottom formation is in the vicinity.”
FII selling- When will this stop?
The other big trigger for the the sharp downturn is no doubt the continued FII selling. The outflows that gained momentum October 2024 onwards has seen withdrawal of over Rs 2.75 lakh crore from Indian markets so far.
Siddarth Bhamre, Head Institutional Research-Asit C. Mehta Investments Intermediates explained that, “You will see when the dollar, that’s been appreciating against the rupee, has started plateauing or probably the reversal has started, that is the point when you can expect the intensity of FII selling to start abetting. This will help in changing the sentiment to some extent. The entire market may not change direction in one shot but you will start seeing some stocks holding up in a falling market, showing signs of generating good returns for investors. Economic numbers are also expected to show some improvement. There is no particular time when everything falls in place, it will be a gradual process.”
Tracking the Dollar Index
The Dollar Index has seen significant strengthening in the last two months. In fact it is currently trading around the key 107 mark after falling marginally from the earlier highs of 108. This has no doubt impacted the rupee’s trajectory too and the Sensex, Nifty too. The rupee has hit new lifetime lows around 87/$ mark in recent times. In many ways this has been ascribed as a key reason for the FII outflows seen in Indian markets. Deven Choksey, Managing Director of DRChoksey FinServ pointed out that the “Dollar Index does hold a key to the market direction. The moment it heads towards 104 mark, it will be the first sign that the market is turning up.”
Earnings outlook
It is no surprise that the Q3 earnings have been disappointing. Though analysts expect some pain to continue in the forthcoming quarter, there are also expectation that outlook will start improving aided by the consumption boost and the capex outlay in the Budget. Siddarth Bhamre added that this could help in offering some positive sentiment booster for the investors, “there is no definitive or sure short way to predict when the selling will stop. We need to wait for earnings to show some improvement. When investors see that they are not as disappointing as last two quarters, that is when markets will start seeing some support.”
For the near-term however, all eyes are on Modi-Trump talks and the next step in terms of how the imposition of Tariff impacts Indian businesses.