Global fund managers are reluctant to invest in Indian stocks amidst economic slowdown and profit downgrades, with nearly $15 billion withdrawn this year. Market valuations, although lower, remain high compared to regional peers. Concerns over US tariffs and potential recession continue to deter foreign investors, despite some experts noting opportunities for value investments.

Recent reports indicate that global fund managers remain hesitant to invest in Indian equities, despite significant market declines leading to lower valuations. The reluctance follows ongoing economic challenges, profit downgrades, and potential US tariffs. Investors seeking opportunities have shifted focus to competitively priced Chinese stocks, which are currently benefiting from a bullish trend driven by artificial intelligence developments.

This shift showcases the reversal of the anticipated stock rotation from China to India, as India’s economic growth returns to a slower pace reminiscent of pre-Covid times amid declining consumption. Consequently, foreign investors have withdrawn nearly $15 billion from Indian equities this year, positioning the outflows to potentially exceed last year’s record of $17 billion and resulting in a $1.3 trillion decrease in market value.

Anand Gupta, a portfolio manager at Allianz Global Investors, noted, “Global investors would need to see sustained evidence of economic recovery and corporate earnings growth.” Investors are keen for increased consumer spending and favorable corporate insights. Despite the Nifty 50 Index trading at lower multiples than in September, it remains more expensive than its emerging Asian counterparts.

Current government data suggests India’s economy is projected to grow at a four-year low of 6.5 percent, with forecasts indicating future growth may remain below the average of nearly 9 percent experienced over the past three years. Furthermore, over 60% of Nifty 50 companies have reported downgrades in forward profit estimates last month, reflecting weak earnings revisions within developing economies, as indicated by Bloomberg Intelligence.

Some investors, however, continue to seek value amidst market volatility. Mark Mobius, a seasoned emerging-market investor, remarked, “The Indian market will recover. We continue to look for opportunities and hold what we have.” Additionally, selling activity by company founders and employees has diminished, with only a modest Rs 490 crore sold this quarter, contrasting sharply with previous averages.

Julie Ho, a portfolio manager at JPMorgan Asset Management, expressed, “We have started to gradually reduce our underweight positions in India as some names are starting to look reasonably valued.” Nonetheless, overall market expectations remain elevated, with valuations still deemed high.

Ongoing concerns, such as US tariffs raised by President Trump and potential recession threats in the US, are expected to keep foreign investors cautious. Rajeev Thakkar, chief investment officer at PPFAS Asset Management, stated, “I don’t see reasons for a vertical recovery; it will be more gradual and led by earnings.”

The Indian equities market faces significant challenges as foreign investors withdraw funds amidst economic slowdown and profit downgrades. Despite a decline in valuations, investment sentiment remains cautious, particularly due to external factors such as US tariffs and recession concerns. While some experts express optimism about future opportunities, the overall market outlook appears guarded, emphasizing the need for sustained economic recovery and corporate earnings growth.

Original Source: www.business-standard.com

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