After Nifty’s longest losing streak in 25 years, what could finally steady Indian stocks?

Indian stocks enter October with investors looking for something more than a technical rebound after the Nifty 50 recorded its longest weekly losing streak in 25 years.

The benchmark index has fallen for eight consecutive weeks, losing 8.7 per cent over the period. The Sensex has also declined for eight straight weeks, shedding 8.4 per cent. The latest weekly fall came despite some easing in crude prices at points during Thursday’s session, highlighting how deeply foreign selling and global financial conditions are weighing on Indian equities.

The immediate question for investors is what could break that cycle.

Foreign selling remains the biggest swing factor

Foreign portfolio investors have been a persistent source of pressure on Indian equities. Reuters reported that foreign outflows from Indian shares had reached a record $27.8 billion so far this year by October 1.

That selling has become more difficult for the domestic market to absorb as global investors find higher returns in US fixed income. The US 10-year Treasury yield touched 5.34 per cent this week, its highest level since 2002, strengthening the dollar and raising the opportunity cost of holding emerging-market equities.

A sustained moderation in US yields, therefore, could ease one of the main pressures on Indian stocks. But that depends partly on how inflation, energy prices and expectations for US monetary policy develop.

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Oil needs to stay below the danger zone

Crude is another crucial variable for India because the country relies heavily on imports to meet its oil requirements.

Brent crude crossed $100 a barrel on Thursday and was still above $102 on Friday as geopolitical concerns continued to keep an elevated risk premium in the market. Higher oil prices can worsen India’s trade balance, put pressure on the rupee and add to inflation risks.

That also limits the room for easier monetary policy. A sustained decline in crude, particularly if geopolitical tensions ease, would remove pressure on several parts of the Indian economy at once.

The RBI policy decision will matter

The Reserve Bank of India’s October policy meeting is now another major trigger for the market.

The Monetary Policy Committee is scheduled to meet from October 5 to 7. A Reuters poll showed that economists expected a 25 basis point increase in the repo rate to 5.50 per cent, which would be the first hike since February 2023.

The backdrop has become more difficult. Inflation rose to 4.82 per cent in August, while the rupee has weakened sharply this year. Higher crude prices and global yields have also pushed up domestic bond yields.

The benchmark 10-year government bond yield rose to 7.21 per cent on Thursday, its highest level since April 2024. The rupee fell to 96.31 per dollar.

A rate hike would not necessarily be negative for equities by itself, but the market will be watching the RBI’s assessment of inflation, growth and the possible path for rates.

Domestic demand could provide a cushion

The other side of the equation is India’s domestic economy.

Even as the market has weakened, economic activity and credit growth have remained relatively firm. Reuters reported that the economy grew by nearly 8 per cent in the April-June quarter and bank credit growth had risen above 19 per cent in July.

The festive season will now offer an important test of consumer demand. Strong spending could support earnings expectations and give domestic investors a counterweight to weak foreign flows.

That support may become more important if global markets remain volatile.

The market needs several pressures to ease

For Indian stocks to stabilise, there may not be one single catalyst. A combination of softer crude prices, a pause or reversal in the rise in US Treasury yields, improved foreign flows and greater clarity on RBI policy could make the environment less hostile.

For now, the market is entering October after a particularly difficult September and an eight-week slide. The next phase will depend less on the fact that the losing streak has reached a 25-year high and more on whether the forces behind that selling begin to ease.

Indian markets are closed on October 2 for Gandhi Jayanti, with trading set to resume on October 5.