NIFTY50 set to end lower for fifth straight month; what lies ahead? Here’s what experts say

The benchmark NIFTY50 index is likely to end February 2025 in the red, its fifth consecutive month of decline. This will mark the longest losing streak for the NIFTY50 in 28 years. The string of negative returns that started in October has led to a decline of 15.42% from the record high of 26,277.35 it touched on September 27. In the last five months, investor wealth worth ₹84.5 lakh crore has been wiped out, as per data from the stock exchanges.

The key reasons behind the ongoing market rout include record selling by foreign institutional investors (FIIs), expensive valuations of Indian equities, disappointing December quarter earnings and uncertainty about trade tariffs imposed by US President Donald Trump.

In the last five months, foreign institutional investors have sold shares worth ₹2,11,070 crore. This is the highest amount of selling ever done by the FIIs, data from the National Securities Depository Limited (NSDL) showed. Analysts say that domestic institutional investors have absorbed the intense selling by FIIs.

The last time the NIFTY50 declined for five months or longer was 28 years ago between July to November 1996, when the NIFTY50 dropped 32%. However, the index staged a massive recovery thereafter, rising 53% from December 1996 to June 1997.

The current rout reminds investors of some of the biggest stock market crashes, such as the Global Financial Crisis of 2008 and the COVID-19 crash of 2020.

The Global Financial Crisis of 2008 saw a steep decline, but with stimulus measures and policy support, the markets recovered significantly in 2009 and continued the bullish trend over the next decade. Similarly, the COVID-19 crash of 2020 saw a rapid rebound within months as central banks worldwide infused liquidity and Indian markets hit new highs in the following years.

According to market veteran AK Prabhakar corrections were quite common before 2008 and Indian markets witnessed corrections every four years.

"The Nifty has corrected only 14% now, but in 1996 the correction was much deeper as the markets were not in a euphoric mood back then. Investors had just seen the Harshad Mehta scam in 1994. Given today's scenario, the correction has just started and there are a lot of excesses. Further, the global markets have still not seen a correction," he said.

However, Vijay Chopra of Enoch Ventures, a Delhi-based financial services company has a different viewpoint. He believes that markets haven’t given up all hope and there are more positives than negatives on the macroeconomic front.

"Consumption is still intact albeit it has slowed down. From the next financial year, disposable incomes are likely to rise when the new income tax provisions kick in, starting in April. Meanwhile, the Reserve Bank of India has started to cut rates and is aggressively conducting open market operations. Further, with increased government spending, the market is expected to witness a revival," Chopra said.

"We have seen some stocks correct 30-40%. All said and done, with falling crude prices, the end of the Russia-Ukraine war in sight and the revival of the Chinese economy, things augur well for Indian markets going ahead," Chopra added.