Foreign investors are withdrawing from India’s stock market, selling approximately $29 billion in shares, while favoring Chinese stocks due to enticing growth prospects. The Indian market has faced a 13% decline amidst high inflation, with corporate earnings stagnating. Analysts suggest that substantial capital outflow from India may continue until 2025.

Recent developments indicate a significant shift in foreign investment trends as investors withdraw from India’s stock market while favoring Chinese equities. The Indian stock market has suffered a notable decline, losing 13% in value and approximately $1 trillion in market capitalization due to rising inflation and interest rates. In contrast, China’s recent economic policies and growth projections are attracting investor interest, leading to the Hong Kong Hang Seng Index gaining 36% since late September.

Foreign investors have divested nearly $29 billion from Indian equities since October, marking the most substantial capital outflow in a six-month period. This pivot highlights a departure from the previously favorable view of the Indian market, as investors increasingly redirect funds towards China, seeking potential growth amid the latter’s planned stimulative policies. Investors such as Rob Brewis from Aubrey Capital Management noted that profits from Indian stocks are increasingly being diverted to China and other regions.

Despite the exodus, asset managers like Morgan Stanley and Fidelity International maintain a positive stance towards India, although they have recently reduced their investment exposure to increase their bets on China. Fidelity’s Nitin Mathur acknowledged a cautious adjustment towards India compared to past strategies, reflecting changing market conditions. As a result, India’s market, previously characterized by high valuations, is experiencing heightened scrutiny due to diminishing corporate earnings.

India’s Nifty 50 index has seen blue-chip companies record only a 5% earnings growth in the most recent quarter, representing a shift from prior years of substantial increases. Investors have expressed concerns over the high valuations impacting sentiment, noting that Indian stocks are priced at 20 times projected earnings, substantially higher than the Hang Seng Index’s valuation of 7 times. Market analysts suggest there is further potential for capital to exit India amid these conditions.

Yet, not all analysts are pessimistic regarding India’s economic outlook. Ryan Dimas from William Blair emphasized India’s strong economic backdrop and growth drivers. Nevertheless, Jitania Kandhari from Morgan Stanley predicts that the outflow of foreign investments from Indian stocks is unlikely to stabilize until at least the second half of 2025.

In conclusion, the shift in foreign investor sentiment from India to China underscores the impact of changing economic conditions and expectations for growth. With significant capital exiting the Indian market due to high inflation and disappointing corporate earnings, stock valuations have come under scrutiny. While some analysts remain optimistic about India’s economic potential, the overall trend suggests a cautious approach may prevail in the coming years as investors adapt to evolving market dynamics.

Original Source: money.usnews.com

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