The unabated decline in the stock market has continued to keep investors on edge, with the Sensex plummeting nearly 2,000 points over the last five days. A host of factors ranging from massive foreign institutional investor (FII) outflows, a firm dollar, and weak earnings have driven the slide. But the question on everyone’s mind is: when will the market stabilize finally?
Although there is no predetermined timeline, analysts recommend that investors keep an eye on major fundamental catalysts that could represent a turning point. Here is what experts believe could indicate the beginning of a recovery.
Key Factors to Watch
The Impacts of Trump's Tariff Policies
One of the biggest overhangs on market sentiment has been increasing trade tensions, particularly the 25% tariff by the U.S. on its steel and aluminum imports. The action has contributed to global trade uncertainties, causing ripples across various sectors.
Siddhartha Khemka, Retail Research Head, Motilal Oswal Financial Services, pointed to the significance of reciprocal tariffs, stating, “Trump’s next move can be reciprocal tariffs, which can directly impact India’s key industries such as pharmaceuticals, IT, and gems & jewelry. The upcoming Modi-Trump meeting will be crucial to see if India can negotiate a better trade agreement. A positive outcome can soothe market fears. Apart from earnings recovery—though gradual—it will be a big trigger. If FII outflows decelerate or reverse, it will be an early sign that the market is near the bottom.”
Foreign Institutional Investors (FII) and Their Selling Spree
One of the major reasons for the ongoing market meltdown has been the relentless selling by FIIs. Over ₹2.75 lakh crore has been withdrawn from Indian markets since October 2024, resulting in high volatility.
Siddarth Bhamre, Institutional Research Head at Asit C. Mehta Investment Intermediates, pointed out, “A key pointer that FII selling is abating will be when the dollar—currently strengthening against the rupee—begins to plateau or even reverses. This reversal will not suddenly turn the market around, but it will begin to improve the sentiment incrementally. Some of the stocks will start to stabilize even in a weak market, offering investment opportunities. Economic indicators should also begin to show incremental improvement. Recovery is rarely an overnight event; it occurs step by step.”
Tracking the Dollar Index
The other important determinant of market direction has been the Dollar Index, which has surged strongly in the past two months. It is currently trading near the 107 level—after briefly touching 108—and has been a major determinant of the rupee's weakness, pushing it to record lows of ₹87 to the dollar. This, in turn, has triggered FII outflows from Indian equities.
Deven Choksey, MD, DRChoksey FinServ, explained, "The Dollar Index is a very key market indicator. If it is moving lower towards the 104 level, it will be one of the first signs that the market is beginning to turn higher."
Corporate Earnings Outlook
As expected, the third-quarter earnings season has been subdued, reinforcing bearish market sentiment. While analysts anticipate some weakness to continue in the coming quarter, they also envision gradual improvements spearheaded by increased consumption and capital expenditure spending in the budget.
Siddarth Bhamre continued, "It is almost impossible to predict when the selling ends. But once corporate earnings start showing signs of stabilization—results are not as bad as they were in the previous two quarters—confidence will return among investors, and the market will begin to find support."
The Road Ahead In the short term, market watchers will be closely watching the Modi-Trump talks and their implications for Indian trade. Any positive news on the tariff front would relieve investor sentiment. No single factor will magically reverse the slide, but monitoring these key indicators will enable investors to assess when the market can begin its climb towards recovery. In the meantime, patience and keeping a close eye on fundamental changes remain the best ways of dealing with the market uncertainty of today.
Disclaimer: The information provided in this blog is for educational and informational purposes only. It does not constitute legal, financial, or professional advice.
