Nifty 50 down 13% from its record high. 5 signs that indicate a rocky road ahead

Last September, when the Indian stock market was soaring, many experts predicted that the Nifty 50 could reach the 28,000 mark within a few months. However, they have been met with a rude shock.

The Nifty 50 is now down about 13 per cent from its record high of 26,277, reached on September 27. The index has been down since October on a monthly scale. On Friday, February 14, the index ended with a loss of 0.44 per cent at 22,929.25, extending its losing streak to the eighth consecutive session.

While some recovery is expected as the market has entered oversold territory, a new bull phase is unlikely to begin anytime soon. In fact, the road ahead looks challenging.

More pain in store?

Experts expect the Indian stock market to remain under pressure in the short term, even though there could be intermittent relief rallies.

"The ongoing market correction may continue primarily because of economic growth losing momentum and the rupee's weakness. However, India remains among the best markets for bottom-up opportunities," said Shankar Sharma, ace investor and the founder of GQuant- an AI tech company. 

Amar Ambani, Executive Director at YES Securities, expects the Nifty to see a further 3-4 per cent correction or stabilise at current levels. However, a structural uptrend is unlikely in the immediate term. 

"We anticipate the Indian stock market to remain volatile and range-bound for the next three months before finding stability. That said, this is not the end of the bull market—only a temporary pause,” said Amar Ambani, Executive Director at YES Securities.

Several experts highlight the following five factors that may weigh on market sentiment:

1. Trump Tariff uncertainty

US President Donald Trump has jolted global markets with his tariff moves. Giving a fresh blow to market sentiment, he has announced reciprocal tariffs. This means the US will levy the same level of tariffs on goods as charged by the exporting countries if their tariffs on similar products are high. Experts say his reciprocal tariffs may create significant headwinds for global businesses and may even cause a widespread trade war with the allies and adversaries alike.

Trump's tariff policies are expected to keep investors on tenterhooks and markets in the doldrums.

"The market consolidation may continue for some time. The tariff tension is going to keep the market under pressure till the time we have clarity," said Pankaj Pandey, the head of research at ICICI Securities.

2. Macroeconomic jitters

Global uncertainty and an unpredictable monsoon have clouded the outlook for the Indian economy. While the country is expected to remain one of the fastest-growing economies, signs of weakness are becoming evident.

Due to a weaker manufacturing sector and slower corporate investments, India's economy is expected to rise by 6.4 per cent in the current financial year.

In its February policy meeting, the Reserve Bank of India (RBI) slightly trimmed nation's growth estimates for the next year. According to the RBI, India's real GDP growth for 2025-26 is projected at 6.7 per cent, with Q1 at 6.7 per cent (against 6.9 per cent projected earlier), Q2 at 7 per cent (from 7.3 per cent projected earlier), and Q3 and Q4 at 6.5 per cent each.

"Whilst long-term macroeconomic fundamentals remain strong, with fiscal consolidation, inflation somewhat benign, bank balance sheets strong, and corporate leverage low, there is clearly a cyclical slowdown driven by slowing public capex and slightly levered households, resulting in slowing consumption, especially middle-class consumption," said Pramod Gubbi, co-founder of Marcellus Investment Managers.

3. FII selloff continues amid fading US Fed rate cut hopes

Foreign institutional investors (FIIs) have sold off Indian equities worth ₹2.94 lakh crore since October last year amid elevated US bond yields, strengthening dollar and stretched valuation of the Indian market.

Fading hopes of a significant rate cut by the US Federal Reserve this year has also aggravated foreign capital outflow. If FPI outflow continues, the Indian stock market may remain under pressure.

“With the US stepping up its stance on import tariffs under Trump’s policies, FIIs have been reducing exposure to emerging markets like India. Additionally, as US treasury yields inched higher, FIIs found safer returns in US bonds, leading to outflows. The appreciating US dollar has further pressured FIIs’ India holdings, as the depreciating rupee would erode their portfolio value," said Ambani of YES Securities.

"Urban consumption has shown signs of slowing down, and government spending on capital expenditure has been lower than the budgeted amount. This has led to earnings moderation, which began in Q2 and has continued into Q3. Given that Indian market valuations were already at a premium, the slowdown made them look even less attractive to FPIs," Ambani added.

4. Reaction of retail investors to market volatility

A recent Kotak Institutional Equities (Kotak Securities) report highlighted that retail investors' returns have been far lower than those of SMID (small and mid-cap) indices. 

As retail investors have been aggressively investing in these segments directly and indirectly through mutual funds, it will be interesting to see how they react to their investments' performance in the coming months.

Support from domestic investors has been a key factor in preventing the Indian market from slipping into bearish territory. However, if they panic and go on a selling spree, it could trigger a major downtrend in the stock market.

5. Rupee's weakness

The weakness of the domestic currency remains a key concern for investors, as it has contributed to foreign capital outflows.

According to Avinash Gorakshkar of Profitmart Securities, the continuous fall in the Indian rupee against the US dollar is a major reason for DIIs (domestic institutional investors) waiting for stability in the national currency.

"They are doing this because DIIs don't want a fresh position in their portfolio as weak rupees are expected to actuate FIIs' further selling as they move from equity to currency and bond markets,” said Gorakshkar.

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