Nifty 50 falls 6.7% in September series, worst monthly performance in 25 years: What lies ahead for the market?

September proved to be one of the most bruising months for the Nifty 50 in recent years. The benchmark ended the September series 6.7% lower, its worst September performance in 25 years, as surging crude oil prices, elevated bond yields, a weakening rupee and persistent foreign selling battered investor sentiment.

The damage was not limited to the monthly series. The Nifty entered October after extending its losing streak to seven consecutive weeks, its longest such run since 2020. The prolonged decline underlines how sharply market sentiment has deteriorated as global macroeconomic pressures increasingly overshadow domestic factors.

Derivatives signal rising bearish bets

The September expiry exposed a deterioration in the market’s technical and derivatives structure, according to Dharmesh Bhatt, Head – Derivatives Research at Systematix Institutional Research.

Nifty fell 6.7% during the September expiry period, while Bank Nifty declined 5.8%. Both indices slipped below their 50-day and 200-day moving averages, with the averages themselves now trending lower, he said.

Nifty’s opening open interest expanded 21.1% into the October series, suggesting that the decline was accompanied by fresh positioning rather than broad-based unwinding. “The combination of falling prices, higher OI and elevated carry points to increasing conviction in fresh positioning, particularly on the index,” Bhatt said.

Nifty rollover stood at 74%, below the three-month average of 76%, while Bank Nifty rollover remained at 79%. Bank Nifty carry rose sharply to 81.9 basis points, alongside an 8.9% expansion in open interest.

Foreign institutional investors have emerged as the most aggressive bearish participants. FIIs increased index shorts by 41.9% to 2.95 lakh contracts, the highest level in the tracked series, taking their net index shorts to 2.67 lakh contracts.

“Participant positioning shows an extreme divergence,” Bhatt said. While FIIs have built aggressive index shorts, clients increased index longs by 30.1% and stock-futures longs by 5.9%, while cutting stock shorts by 19.4%. Domestic institutional investors also turned net bullish on indices, while proprietary traders remained broadly neutral.

Stock-specific buying offsets broader weakness

At the stock level, the picture is more nuanced. Broad stock-futures positioning has de-risked, with rollover easing and open interest contracting, but fresh accumulation is visible in select names. Coal India, Adani Ports, Tata Steel and Aurobindo Pharma showed a combination of price strength and rising open interest.

Healthcare emerged as one of the stronger pockets of fresh accumulation. Aurobindo Pharma gained 5.6% while its open interest jumped 375.5%, while Zydus Lifesciences rose 9.9% with open interest increasing 21.5%. Metals also showed strong sector-level numbers, although much of the open-interest expansion was accompanied by falling prices, with Tata Steel standing out for genuine fresh-long accumulation.

The weakness in IT and realty remains pronounced. IT sector open interest declined 13%, with long unwinding visible in TCS and Infosys, while Wipro and HCL Technologies saw fresh short buildup accompanied by negative carry. Realty, too, has shifted from earlier accumulation towards active short positions in DLF, Prestige Estates and Lodha Developers.

Crude, yields and FII flows hold the key

The macro backdrop remains challenging. The 10-year government bond yield has moved above 7.1%, the rupee is approaching the ₹96.50-per-dollar breakout zone and crude remains elevated.

Siddhartha Khemka, Head of Research – Wealth Management at Motilal Oswal Financial Services, said elevated crude, the rupee’s weakness and relentless foreign selling continue to weigh on sentiment. He also pointed to firm global bond yields, with the US 10-year yield around 5.2%.

Ajit Mishra, SVP – Research at Religare Broking, said elevated crude, firm US Treasury yields and continued foreign outflows were keeping sentiment under pressure. However, oversold conditions and expiry-related activity have provided some recovery from the lows. Technically, the Nifty’s 200-week simple moving average around 22,600 remains an important support, with the next level around 22,400.

Vinod Nair, Head of Research at Geojit Investments, said volatile crude, elevated US Treasury yields and persistent FII outflows continue to pressure equities. He also highlighted the unprecedented pace of IPO fundraising as another source of liquidity absorption from the secondary market.

For October, the market enters with a fragile structure, with elevated FII shorts, weakening technical indicators and a difficult macro backdrop weighing on sentiment. At the same time, aggressive client buying, DII support and selective accumulation in pockets such as healthcare show that positioning is not one-way.

The key variables for the market will be the trajectory of crude prices and global yields, along with the intensity of foreign selling. A sustained easing in these pressure points could influence how the market responds after its bruising September run.

(DISCLAIMER: The views and opinions expressed by investment experts on fortuneindia.com are either their own or of their organisations, but not necessarily that of fortuneindia.com and its editorial team. Readers are advised to consult certified experts before taking investment decisions.)