Code red! NSE breadth breaks down as 350 out of 500 stocks crash up to 60% in two month selloff

The selloff in Indian equities has spread deep into the broader market, with 350 of the NSE 500 stocks delivering negative returns over the last two months, as elevated crude prices, hardening US bond yields, a weak rupee and sustained foreign selling hurt risk appetite.

The damage was sharp across sectors, with the worst-hit stocks falling between 18% and 64% in two months. Zee Entertainment fell 34%, while PB Fintech declined 33%. India Cements, Power Finance Corporation, Avanti Feeds, Godrej Properties, CreditAccess Grameen, Adani Energy Solutions and Godrej Consumer Products were also among the major losers.

The weakness was not limited to one pocket of the market. Power financiers such as PFC and REC fell more than 20% each. Real estate names like Godrej Properties came under pressure. Consumer names such as Godrej Consumer, Crompton Greaves Consumer Electricals, Voltas, PG Electroplast, Havells India and United Breweries also corrected sharply.


Capital goods and infrastructure-linked names, including Thermax and KEC International, were among the top losers.

The broad-based decline came during one of the toughest phases for Indian equities in recent years. The Nifty closed out its worst September derivatives series in a quarter century, falling 6.7% during the series. The benchmark lost more than 1,400 points in the month as foreign investors stepped up selling and global cues turned hostile.

The pressure has extended beyond the monthly expiry. Nifty has ended seven straight weeks in the red and is at risk of recording an eighth consecutive weekly decline if the market fails to recover. That would mark its longest losing streak since 2001, when the index fell for nine weeks in a row.

Foreign institutional investors ended a two-month buying streak in September, selling Indian equities worth Rs 25,662 crore, their highest monthly outflow in six months. FII outflows for 2026 have crossed Rs 2.5 lakh crore, according to NSDL data, putting foreign investors on track for record annual selling.

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"The near 6% sharp correction in Nifty in September, so far, was triggered mainly by elevated crude and high US bond yields. The correction turned intense during the last few days when FIIs turned big sellers," said V K Vijayakumar, chief investment strategist at Geojit Investments.

"In the context of the 10-year US bond yields hovering around 5.2%, this FIIs selling is a rational act," he said.

Higher US bond yields reduce the relative appeal of emerging market equities, while elevated crude prices are a direct concern for India because the country imports most of its oil requirement. High crude can widen the current account deficit, add pressure on inflation and weaken the rupee. A weaker rupee, in turn, makes Indian assets less attractive for foreign investors.

Analysts also said foreign investors have been shifting capital towards AI-heavy markets such as South Korea and Taiwan, where large technology and semiconductor stocks have drawn global flows. That has added to the pressure on Indian equities at a time when valuations in several pockets were already seen as expensive after the post-2020 rally.

What does rest of the year hold?

The correction has been more severe in stocks where valuations had run ahead of earnings. Chandraprakash Padiyar, senior fund manager at Tata Asset Management, said markets have entered a different phase after the strong gains seen between 2020 and 2024.

"We believe March 2026 levels for Mid-Small caps were very attractive and since then markets have normalised the valuation levels,” Padiyar said. “We do believe valuation across market capitalisation be it Large/Mid/Small are quite expensive in certain pockets and appear reasonable in other pockets."

He said stock selection has become more important because earnings and valuation gaps have widened.

"Unlike the period between 2020 and 2024 where stock selection need not be the sole criteria of healthy returns, we have entered a different market environment where earnings and valuation differential is very large, and stock selection is extremely important specially with the volatile global environment," Padiyar said.

Vijayakumar said the correction has also created opportunities for domestic investors, especially in largecap stocks with strong growth prospects. He identified financials, particularly large banks, capital goods, telecom and automobiles as segments where valuations have become more attractive.

Data: Ritesh Presswala

Disclosure: This article has been written by Podishetti Akash, who is not a SEBI-registered Research Analyst or an Investment Adviser. Podishetti Akash and his ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclosureshere.