Challenges in India’s Stock Market Amidst $1.3 Trillion Decline
India’s stock market is reeling from a $1.3 trillion decline due to economic slowdowns and foreign investor outflows. While corporate profits are suffering and numerous companies have downgraded forecasts, some investors are still seeking bargains. The sentiment remains cautious, with potential recovery expected to be gradual due to ongoing external risks and elevated market valuations compared to peers.
India’s stock market is grappling with significant challenges following a $1.3 trillion decline in market value, influenced by an economic slowdown, profit downgrades, and potential tariffs from the United States. Traders are increasingly attracted to cheaper Chinese equities amidst their bull run, further illustrating the reversal of expected stock rotation from China to India. With overseas investors withdrawing nearly $15 billion from Indian shares this year, the outflows may exceed 2022’s record low of $17 billion.
The current market sentiment mirrors an environment where investors await clearer signs of economic recovery and improved corporate earnings. Anand Gupta, a portfolio manager at Allianz Global Investors, emphasized, “Global investors would need to see sustained evidence of economic recovery and corporate earnings growth.” Investors are especially focused on encouraging trends in consumer spending and corporate reports. Presently, India’s NSE Nifty 50 Index trades at 18 times forward earnings, still higher than its emerging Asian peers despite the downturn from 21 times in September.
Corporate profitability is also suffering, with over 60% of companies in the Nifty 50 Index seeing downgrades in profit estimates last month. According to JM Financial Ltd, the momentum of earnings revisions in India reflects poor performance compared to other developing nations in the region, as noted by Bloomberg Intelligence. Despite these pressures, some investors, such as Mark Mobius, are seeking undervalued stocks amidst ongoing volatility.
Selling activity from company founders and employees has diminished, alleviating some pressure on the market. This quarter, they sold 4.9 billion rupees ($56.4 million), a stark contrast to the previous average of 114.3 billion rupees in the last eight quarters according to Nuvama Wealth Management Ltd. Julie Ho, a portfolio manager at JPMorgan Asset Management, stated, “We have started to gradually reduce our underweight positions in India as some names are starting to look reasonably valued.”
Ongoing risks, including potential reciprocal tariffs imposed by the U.S. and concerns over a recession, may deter foreign investments. Rajeev Thakkar, of PPFAS Asset Management, indicated that while an attractive entry point into the market is emerging, recovery will likely be gradual, driven by earnings rather than a sharp rebound. Investors remain cautious yet vigilant in identifying potential opportunities in India’s market landscape.
India’s stock market faces substantial headwinds characterized by declining market values, corporate profit downgrades, and significant foreign investor outflows. Despite these challenges, some investors perceive potential in undervalued stocks. Risks, particularly concerning U.S. tariffs and economic conditions, continue to influence market sentiment. A cautious and gradual recovery appears to be anticipated, underscoring the importance of sustained economic improvements and stronger corporate earnings.
Original Source: m.economictimes.com
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