The Indian stock market is currently in bad shape, passing through a distinctly bearish phase. During the last 50 days (from October 1 to November 20, 2024), the market capitalisation of all listed equities has fallen by over half a trillion US dollars, with investors losing Rs 48.5 lakh crore ($ 620 million) and the market cap sliding from Rs 478 lakh crore on September 27, 2024 to Rs 429.5 lakh crore on November 20, 2024.

Undeniably, the major driving force behind the massive slide in stock prices is the persistent and heavy selling by foreign investors. Due to several reasons, including overvaluation of Indian stocks, fears of political uncertainty in India, a strengthening dollar and rising US yields, foreign institutional and portfolio investors are diverting funds to China, where the government has planned stimulus packages to revive the weakened Chinese economy and where stock valuations are attractive compared to India. There are a few other reasons, like a depreciating rupee against the greenback, rising crude oil prices and a discouraging corporate performance during Q2FY25, that have aided the downward drift in Indian stock prices.

What is more, the end of the bearish phase does not seem to be in sight. As if the current disturbing situation is not enough, the environment has been vitiated further with an American court indicting the Adani group for bribing some Indian state governments to the tune of $ 250 million. Needless to say, it is a matter of national shame that an Indian industrialist is indicted by an American court on a charge of bribing Indian officials, even as the Indian government and the Securities and Exchange Board of India (SEBI) are seemingly unaware of the alleged wrongdoing.

In any case, these are bad days for the Indian stock market and investors. But the common investor should not get disheartened. After all, the stock market is characterised by both bearish and bullish phases. Price rises and falls are part and parcel of the stock market. In other words, this period too shall pass and after, say, 3 to 6 months the market will shed its nervousness and prices will chart an upward course once again.

Experts and analysts are confident of a consolidation phase in due course. In Q2FY25, the government was totally occupied with state elections. But during the second half of fiscal 2025, market sentiment is expected to improve on account of strategic development spending by the government and robust consumer demand.

Going ahead, investors will do well to keep a close watch on global developments and geopolitical tensions while focusing on building a well-diversified portfolio that can weather uncertainties and capitalise on emerging sectoral trends.

Admittedly, during the first half of fiscal 2025, Indian companies put up a discouraging performance, but many businesses are eyeing an upwards earnings trajectory during the second half. The government’s capital expenditure, which was lower in the first half, is expected to pick up post-state elections, underpinned by robust tax revenues. Along with this, the monsoon could bolster rural incomes and consequently drive consumer spending.

So, wise long-term investors should tighten their belt and get ready to restart investment decisions. Though FIIs and FPIs may offload their stocks for a few weeks more, on the plus side stock prices will shed extra ‘fat’. Remember, mutual funds are sitting on a humongous cash pile of Rs 1.85 lakh crore. PMS managers are also waiting to deploy their huge cash outlays.

Our prognosis: Let the current bearish phase weaken, and get ready to invest once again.