Nifty 50 drops over 16% from all-time high: Top crucial factors could spark a turnaround in the near term

The Indian stock market has been experiencing a steady decline for several months due to global trade disputes, foreign portfolio investor withdrawals, concerns about corporate earnings, and valuation pressures, as noted by analysts.

Mohit Gulati, the CIO and managing partner of ITI Growth Opportunities Fund highlighted that despite the recent steep correction, Indian stock market remains expensive, with valuations still stretched compared to historical averages.

“It’s good that my fellow Indians are beginning to realize that achieving FIRE (Financial Independence, Retire Early) isn’t easy, and life isn’t just based on compound interest formulas,” added Gulati.

Adding to the uncertainty are Donald Trump’s aggressive global policies, which threaten emerging markets like India with tighter liquidity and increased sell-offs.

The Nifty 50 has declined by almost 4% over the past month, and on a quarterly basis, it has dropped nearly 9%, according to data from Trendlyne. Rajesh Bhosale, Equity Technical and Derivative Analyst at Angel One stated that since hitting an all-time high of 26,277 in September, Nifty 50 has corrected over 16%, consistently forming a lower top-lower bottom structure. The index has now approached a crucial support zone of 21,800 – 22,000, where it had previously bottomed out before last year’s pre-election rally.

Investors have been seeking some relief amidst the significant market declines, hoping for a recovery or rebound soon. In the context of significant market fluctuations, the D-Street has been eagerly awaiting a glimpse of hope amid the gloom, with experts analyzing several factors that currently bolster the market.

Prashanth Tapse, Research Analyst, Senior Vice President of Research at Mehta Equities stated that corrections are a natural part of market cycles, yet this phase may be little challenging as panic and patience play a major role to give direction for markets. In the ongoing market sell off there are few factors which still provide support to markets to sustain or even bounce back sooner or later.

Some factors encompass domestic valuations becoming more reasonable, the diminishing anxiety over the unknown (such as tariffs), RBI's efforts to stabilise the rupee, decreasing crude oil prices, steady inflation, robust domestic investments, and budgetary measures aimed at revitalizing growth through increased consumption and cutting direct and indirect taxes.

Declining dollar

The US Dollar Index has fallen below the 105-106 range and is establishing a lower high-low pattern on the weekly chart, which is favourable for emerging markets.

Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services explained that a significant feature of the recent market correction is that India is now outperforming the US. During the last one month, while S&P 500 is down 7.5% Nifty 50 is down only 2.7%. More important, the dollar index is down from 109.3 when Trump assumed presidency to 103.71 now.

If this trend continues it will provide the support for the market. Declining dollar is good for emerging markets like India. Capital outflows from India will decline. This will support the market.

Strong Domestic Inflows

Domestic Institutional Investors (DIIs) have poured in around ₹1.51 lakh crore year-to-date, which has countered Foreign Portfolio Investor (FPI) withdrawals and helped maintain market levels, according to reports.

Lower Brent Crude

Bajaj Broking Research pointed out that consistently maintaining prices under the $72-75 range bodes well for India's economic prospects. The yield on the US 10-year Treasury has fallen to its lowest level since December, now at 4.25%. This decline in yield is expected to favour emerging markets such as India.

Economic Growth Recovery

Dr. V K Vijayakumar explained that leading indicators suggest economic growth recovery which can lead to around 7.5% GDP growth in Q4 FY25. Earnings growth will follow. These are positive signals which can support the market.

Further, Domestic valuations getting reasonable, fazing out Fear of unknown is known now(Tariff), RBI intervention to control rupee, lower crude, stable inflation, strong domestic inflows, Budget support to bring back growth via consumption push, reduction in direct and indirect tax.

Ideal investment strategy - Here's what experts say

Tapse advised that catching market at right bottom and selling at top is a myth but investing in red will give best opportunity to enjoy the green in long term.

According to Dr. V K Vijayakumar, the ideal investment strategy now is not to panic in the market correction and continue with the policy of slow accumulation of high quality stocks mainly in large caps and selectively in beaten down mid and smallcaps. Defence stocks appear attractively valued.

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decision.