The Indian stock market witnessed a significant downturn on Tuesday, October 22, as major benchmark indices, the Sensex and Nifty 50, plunged by over 1% each. This sharp decline was driven by a combination of global geopolitical tensions, a sustained selloff by foreign portfolio investors (FPIs), and weaker-than-expected Q2 earnings from several companies. By the end of the trading session, the Sensex dropped by 931 points (1.15%) to close at 80,220.72, while the Nifty 50 slipped by 309 points (1.25%) to settle at 24,472.10.

The fall was more pronounced in the midcap and smallcap segments, with the BSE Midcap index losing 2.52% and the Smallcap index crashing by 3.81%. These indices saw heavy losses as investors moved away from riskier assets amid growing market uncertainties.

Market Capitalisation Loss

The overall market capitalisation of firms listed on the BSE dropped sharply by nearly ₹9 lakh crore in a single day, decreasing from ₹453.7 lakh crore in the previous session to ₹444.8 lakh crore. This massive decline in market cap has left investors poorer as panic-selling gripped the broader market.

While most stocks were in the red, only three stocks—ICICI Bank (up 0.74%), Nestle (up 0.10%), and Infosys (up 0.04%)—managed to close the day in positive territory within the Nifty 50 index.

Sectoral Performance

Among the sectoral indices, Nifty PSU Bank, Realty, and Metal were the worst performers, crashing by 4.18%, 3.38%, and 3% respectively. These sectors are particularly vulnerable to geopolitical risks and market volatility, making them more susceptible to heavy losses.

Other sectors like Nifty Auto, Media, Consumer Durables, and Oil and Gas also faced significant declines, each falling by over 2%. Even the Nifty Bank index wasn't spared, dropping 1.36%, while the Private Bank index slipped by 0.97%.

Factors Behind the Market Fall

Several factors contributed to this sharp market decline. Analysts pointed to elevated geopolitical tensions, especially in the Middle East, along with uncertainty surrounding the upcoming US presidential election. Additionally, a sustained FPI selloff and stretched stock market valuations further exacerbated the downward pressure on Indian equities.

1. Geopolitical Tensions in the Middle East

One of the primary reasons behind the market fall is the ongoing conflict in the Middle East, which has heightened global risk. Tensions remain elevated as Hezbollah reportedly fired rockets at multiple Israeli targets, including bases near Tel Aviv and Haifa, just hours before US Secretary of State Antony Blinken arrived in Israel to push for a ceasefire. This development has kept investors on edge, with global markets reacting to the potential for the conflict to escalate further.

2. Uncertainty Around the US Presidential Election

The upcoming 2024 US presidential election is adding another layer of uncertainty. A recent Reuters/Ipsos poll suggests a close race between Democratic Vice President Kamala Harris and Republican Donald Trump. The outcome of the election could have significant implications for global markets, including India, as it may affect bilateral relations between the two countries, especially in sectors like defense, trade, and strategic partnerships.

3. Stretched Valuations

Another key factor affecting the market is the stretched valuation of Indian stocks. Despite the recent correction, analysts highlight that the current valuation of the Nifty 50 remains higher than its two-year average. The price-to-earnings (PE) ratio of Nifty 50 is slightly above 23, compared to its two-year average PE of 22.2. This has prompted many investors to engage in profit booking, especially after the recent rally in Indian stocks.

4. Sustained Foreign Capital Outflow

A significant foreign portfolio investor (FPI) selloff has also contributed to the market's downfall. FPIs have been pulling out large amounts of capital from Indian equities, with a record ₹82,479 crore withdrawn so far in October alone. The primary reason behind this exodus is the "sell India, buy China" strategy that has gained traction after Beijing announced several stimulus measures to boost its slowing economy. The valuation gap between Indian and Chinese markets has made the latter more attractive to foreign investors, who are shifting their funds to China in search of better returns.

5. Unimpressive Q2 Earnings

The September quarter earnings of Indian companies have also been underwhelming, with several firms reporting lower-than-expected profits. Analysts had hoped for a stronger earnings recovery in Q2, but the rate of growth has been disappointing. According to analysts, the Nifty 50 is expected to report just a 4% quarter-on-quarter growth in PAT (Profit After Tax), raising fears of earnings downgrades in the coming quarters. Additionally, high global inflation continues to erode operating margins, making it harder for companies to deliver robust earnings growth.

Corporate Earnings & Financial Performance

Kajaria Ceramics: Falls sharply as its Q2FY25 net profit declines 22.8% YoY to Rs 85.5 crore due to higher raw material and employee benefit expenses. Revenue increases 5.1% YoY to Rs 1,179.3 crore, helped by the tiles segment.

Varun Beverages: Posts a 23.7% YoY increase in net profit to Rs 619.6 crore in Q2FY25. Revenue rises 25.3% YoY to Rs 4,932.1 crore, with sales volume growing 21.9% YoY.

Mahindra Logistics: Narrows its net loss by 32.5% YoY to Rs 10.8 crore in Q2FY25. Revenue grows 11.5% YoY to Rs 1,521 crore, driven by the supply chain management segment.

One97 Communications (Paytm): Falls as its revenue declines 31.1% YoY to Rs 1,834 crore in Q2FY25. However, it posts a net profit of Rs 928.3 crore due to lower payment processing, marketing, and employee benefit expenses.

Goodyear India: Falls to a new 52-week low of Rs 1,030.1 as its net profit declines 58.5% YoY to Rs 15.7 crore in Q2FY25 due to higher material costs. Revenue decreases 1.3% YoY to Rs 682.3 crore.

ICICI Securities: Reports 24.9% YoY growth in net profit to Rs 529 crore in Q2FY25. Revenue increases 36.6% YoY to Rs 1,706.7 crore due to treasury, broking, and issuer services.

Gravita India: Posts a 24.4% YoY rise in net profit to Rs 72 crore in Q2FY25, driven by inventory destocking. Revenue increases 13.8% YoY to Rs 967.8 crore.

Route Mobile: Posts a 21% YoY rise in net profit to Rs 10.7 crore in Q2FY25. Revenue increases 9.7% YoY to Rs 1,113.4 crore, driven by domestic and overseas business.

Supreme Industries: Falls as its net profit declines 15% YoY to Rs 206.6 crore in Q2FY25 due to inventory destocking. Revenue decreases 1.4% YoY to Rs 2,288 crore.

Bajaj Housing Finance: Posts 20.9% YoY growth in net profit to Rs 545.6 crore in Q2FY25. Revenue rises 26.1% YoY to Rs 2,410.2 crore.

360 One Wam: Falls as its Q2FY25 net profit misses estimates by 6.1% but grows 32% YoY to Rs 245.5 crore. Revenue rises 42.9% YoY to Rs 890.4 crore.

Cyient DLM: Falls as its net profit misses estimates by 24.8%, despite growing 5.5% YoY to Rs 15.5 crore in Q2FY25. Revenue increases 33.4% YoY to Rs 389.5 crore.

Authum Investment and Infra: Nosedives by 12% after reporting a 49.2% YoY drop in revenue to Rs 1,092.62 crore in Q2FY25.

Stock Market & Price Movements

Hyundai Motor India: Shares debut at a 1.3% discount to the issue price of Rs 1,960. The Rs 27,870.1 crore IPO received bids for 2.4 times the total shares on offer.

Union Bank of India: Rises as net profit grows 34.4% YoY to Rs 4,719.7 crore in Q2FY25. Revenue increases 13.3% YoY to Rs 32,036.5 crore, with improvements in asset quality.

City Union Bank: Surges by 12% after reporting better-than-expected Q2 earnings. Investec maintains a 'Buy' rating with a target of Rs 200 per share.

PNC Infratech: Shares slip by 7% after the Ministry of Road Transport and Highways disqualified the company from tenders for a year following a CBI investigation into bribery allegations.

Nitco: Falls 5% after announcing the sale of real estate assets, expansion of share capital, and a preferential allotment to Authum Investment and other investors.

Garden Reach Shipbuilders and Engineers: Falls by 12%, as concerns over lofty valuations in defense stocks trigger profit booking.

Mazagon Dock: Declines by 10% as defense stocks face broad sell-offs amidst market volatility.

Acquisitions, Orders & Corporate Strategy

NBCC (India): Receives multiple work orders totaling Rs 127.5 crore from various clients, including Oil India, IIFCL, Intelligence Bureau, GS1 India, EDCIL, and Munitions India for interior fit-out works.

Ambuja Cements: Approves the acquisition of a 72.8% stake in Orient Cement for Rs 5,903 crore.

Elecon Engineering: CFO Kamlesh Shah says the company is on track to meet revenue guidance of Rs 2,225 crore with an EBITDA margin of 24% in FY25. Performance in Q2 was impacted by the Lok Sabha Elections.

Gravita India: CEO Yogesh Malhotra projects volume growth of 23-27% in FY25, expects EBITDA margin to improve by 50 bps in select verticals, and anticipates a RoCE of over 20%.

Ambuja Cements: Shares fall 2% after announcing the acquisition of a 46.8% stake in Orient Cement for Rs 8,100 crore.

Investor Sentiment and Outlook

The combination of these factors has led to a growing sense of caution among investors. Domestic investors are particularly wary of the sustained foreign outflows, which have created a sense of uncertainty in the market. The lack of a clear resolution to global geopolitical issues, coupled with concerns over stretched valuations and weak corporate earnings, has kept investor sentiment bearish.

Looking ahead, market experts remain cautious about the short-term outlook for Indian equities. While some expect the market to stabilize once the geopolitical situation improves and corporate earnings recover, others warn of further downside risks if these factors persist. Investors are advised to adopt a wait-and-watch approach and be selective in their stock picks during this period of heightened volatility.

In summary, the Indian stock market's sharp decline on October 22 was driven by a mix of geopolitical risks, foreign investor selloffs, and disappointing corporate earnings, resulting in a loss of ₹9 lakh crore in market capitalisation. Investors will need to navigate these challenges carefully in the coming weeks, as the global economic environment remains uncertain.

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