Foreign Investors Depart from India’s Stock Market Amidst Economic Concerns
Foreign investors are withdrawing from India’s stock market, selling nearly $29 billion worth of shares in the last six months. This trend follows a decrease in Indian stock valuations and disappointing earnings growth. Many investors are reallocating their investments to China’s market, which notably has shown significant recovery and growth potential. While some maintain a positive outlook on India, substantial foreign investment is unlikely to return until mid-2025.
Recent trends indicate that global investors are significantly withdrawing from India’s stock market, opting instead for Chinese equities. This shift has culminated in a historic outflow of nearly $29 billion from Indian shares over the past six months, coinciding with robust performance in China, particularly following a 36% rise in Hong Kong’s Hang Seng Index. Factors contributing to this trend include high inflation and interest rates impacting corporate earnings in India.
Reports detail that since September, Indian stocks have declined by 13%, leading to a market value loss of approximately $1 trillion. Experts such as Jitania Kandhari from Morgan Stanley have emphasized that as funds flow into China, India becomes sidelined. This sentiment is further echoed by Rob Brewis of Aubrey Capital Management, who noted a primary shift in portfolio allocations to China and other regions like Southeast Asia. Asset management firms are reassessing their positions, with Fidelity International adopting a more cautious stance toward Indian equities.
The decline in India’s stock values has raised valuation concerns, particularly as earnings growth has slowed dramatically. The Nifty 50 index saw only a 5% earnings increase for the last quarter, marking three consecutive quarters of subpar performance post years of significant growth. Analysts warn that India’s equity market, previously characterized by high valuations, may continue to experience outflows as earnings decline.
Despite these challenges, some investors maintain a positive outlook on India, highlighting its robust economic framework and potential for future growth. Ryan Dimas from William Blair acknowledges India’s promising economic foundations. However, Morgan Stanley’s Kandhari predicts that substantial foreign capital may not return until mid-2025, marking a noteworthy period of transition for investors in one of Asia’s largest markets.
In conclusion, India’s stock market is currently experiencing significant foreign capital outflows, largely due to high inflation and disappointing earnings, which have led investors to seek opportunities in China where market conditions appear more favorable. While some investors remain optimistic about India’s long-term prospects, there is a consensus that recovery in capital inflows might not materialize until later in 2025, indicating a critical period for the Indian investment landscape.
Original Source: money.usnews.com
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