DM Deshpande
‘What a fall was there my countrymen’ William Shakespeare the legend had said in a different context. But what a fall in markets sums up the unprecedented behaviour of stock markets.
In less than four months $1 trillion of investors’ funds have disappeared in thin air. To put that in perspective, the total market capitalization of all listed companies in NSE is $4 trillion. The Nifty has seen a record five consecutive months of selling leading to its slide by about 15 per cent.
The BSE Sensex has fared no better during this period. The small caps and mid caps are the worst hit; both are down by 20 per cent. Concerns about this market correction emerge from an analysis of historical data. In the last 20 previous corrections exceeding 10 per cent fall, the average correction was a slide of 14 per cent that lasted 70 days. This, of course, excludes major external crises like Covid 19 or the global financial meltdown.
In contrast, this crash has lasted 165 days (and still counting) and the key Nifty 200 has declined by 16 per cent. Further, in the recent past, the Indian economy has been the top performing one among the larger nations.
As a result, earlier corrections have been mostly on account of external factors. This time, however, there isn’t such a catalyst though the US trade related tensions have accentuated the fall in markets. However, these developments are relatively new while the bear phase of Indian markets is five months old.
There are certain major reasons why the markets hit the bottom. The selling spree by FPI; as per National Security Depository Ltd (NSDL); in 2025 so far they have pulled out Rs 1.14 trillion from Indian markets. It may be surprising for a few that even when the market indices are down, they have continued to sell and exit. However, unlike a vast majority of first time retail investors, they have not bought equity at their peak, high and fancy prices.
Essentially, foreign funds are leaving Indian shores because of sound economic reasons. Sentiments in Indian markets are hardly encouraging with bears gaining full control for months in succession. Corporate earnings have, over all, which is adding to the negative wave. The overall economy may still be in a far better shape but the growth has taken a hit.
But the main reason why FPI’s are selling is because of the sharp fall in the Indian rupee. That the US Dollar has risen against all major currencies is given but after initial resilience the Indian Rupee has lost value. As a result, the net return is no more than 4 per cent for FPI’s. The US and the dollar have once again emerged as safe havens in the prevailing geopolitical order. The Chinese markets have re-emerged on the global scene and stocks are available at attractive valuations.
Generally, retail investors bear the brunt of market crashes. This time, too, it is no different. Since the pandemic the benchmark stock market indices in India have nearly doubled till the third quarter of the last year. Additions to demat accounts have been mind boggling from 33.3 million in 2019 to 185 million in 2024 at the peak level.
Online platforms ease with which accounts can be opened and increase in discretionary incomes have led to the massive surge. An estimated 100 million new investors, mostly young, are reported to have taken to stocks and derivatives trading in a big way. The SEBI not only warned but also tightened the norms for futures trading. Yet, lured by small margins, they placed big bets and now find themselves in a mess.
The consequence of retail investors taking a hit is indeed bad. The consistent flow of money into markets is already impacted; this was a cushion that kept the Indian markets resilient when FPIs began selling out.
Since mid 2023 they have surged from over Rs.150 billion to over Rs.250 billion by the end of 2024. However in 2025 till now, brokers have seen a 30 per cent drop in activity.
Angel One, the largest listed retail broker in India reported a 26 per cent fall in client acquisition month on month in February this year. The domino effect is also witnessed on IPO offerings in the primary market.
The author has four decades of experience in higher education teaching and research. He is the former first vice-chancellor of ISBM University, Chhattisgarh
The silver lining is that India still remains an attractive market with minimal share in global manufacturing exports but with a significant presence in service trade during ongoing tariff tensions. In its recent report Morgan Stanley has highlighted how India is a ‘stock pickers market’.
So far, markets have ignored, by and large, the huge concession in personal income tax and the RBI’s policy pivot. Both could be game changers as they can boost consumption which has been sluggish for long. Headline inflation is showing signs of further decline which will enable the RBI to announce more cuts in interest rates.
Morgan Stanley feels that Sensex will climb to 1,05,000 by December 2025. That seems to be overly ambitious now considering that it is stuck at 75K which means a spike of over a third from the current level! Immediately though, the concern of all stakeholders is a satisfactory recovery in markets.
The author has four decades of experience in higher education teaching and research. He is the former first vice-chancellor of ISBM University, Chhattisgarh
