India Faces Continued Investor Hesitance Amid Economic Challenges
Global fund managers are reluctant to invest in Indian stocks despite lowered valuations. The Indian market is hindered by an economic slowdown, profit downgrades, and uncertainties around US tariffs, leading to nearly $15 billion in withdrawals. A gradual recovery is expected, but sustained positive indicators will be necessary to restore investor confidence.
Global fund managers remain hesitant to invest in Indian stocks, despite the decline in equity valuations from an unprecedented losing streak. The Indian market is facing significant hurdles, including an economic slowdown, profit downgrades, and potential tariffs from the United States. As a result, traders seeking bargains are focusing on cheap Chinese equities instead, which are currently experiencing a bull run driven by advancements in artificial intelligence.
This shift in sentiment marks a reversal in the previously expected stock rotation from China to India, as the Indian economy returns to a slower growth rate reminiscent of the pre-COVID period, influenced by dwindling consumption. Consequently, foreign investors have withdrawn nearly $15 billion from Indian shares this year, threatening to exceed the previous record outflow of $17 billion observed in 2022, leading to a loss of approximately $1.3 trillion in market value.
Anand Gupta, a portfolio manager at Allianz Global Investors, emphasized the need for global investors to witness solid evidence of economic recovery and corporate earnings growth to reinvest confidently. Investors are particularly focused on increased consumer spending, both urban and rural, along with positive corporate forecasts.
India’s NSE Nifty 50 Index currently trades at 18 times forward earnings, a decrease from 21 times in September, though still higher than its emerging Asian counterparts. Recent government data forecasts a four-year low of 6.5% economic growth for the fiscal year, with some analysts predicting future growth will remain consistently below the 9% average of recent years, indicating a tougher climate for corporate profits.
Corporate earnings have been adversely affected, with over 60% of Nifty 50 companies experiencing downgrades to their profit estimates last month. As indicated by Bloomberg Intelligence, India’s earnings revision momentum is notably among the weakest in developing economies within the region. However, some investors identify opportunities within the ongoing selloff.
Veteran emerging-market investor Mark Mobius remarked on the lack of clear market stabilization, yet sees it as a prime time to identify value. He maintains optimism for a market recovery while continuing to seek opportunities. Selling activity by company founders and employees has also reduced, which alleviates additional market pressure, with sales recorded at only 4.9 billion rupees this quarter compared to significant withdrawals in previous quarters.
Julie Ho, portfolio manager at JPMorgan Asset Management, noted a gradual reduction in underweight positions in India, suggesting some stocks are approaching reasonable valuations. Nonetheless, she cautions that market expectations remain elevated and overall valuations are still considered high.
Lingering uncertainties, including potential tariffs from President Trump and the risk of a US recession, may keep foreign investors cautious. Rajeev Thakkar, chief investment officer at PPFAS Asset Management, indicated that while an attractive market entry point is emerging, a swift recovery is unlikely, predicting a more gradual process led by earnings improvement.
The Indian stock market faces substantial challenges, highlighted by significant investor outflows and a decline in corporate profits. While some investors are cautiously looking for value amidst the selloff, general sentiment remains pessimistic due to economic slowdowns and external risks. A gradual recovery is anticipated, hinging primarily on positive economic indicators and improved corporate earnings moving forward.
Original Source: www.livemint.com
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