Indian Stocks Fail to Spark Global Interest, Despite Valuation Discounts
New Delhi (The Uttam Hindu): Global fund managers are holding back on piling into Indian stocks, even as an unprecedented losing streak has lowered equity valuations. The hesitation comes amid concerns over an economic slowdown, profit downgrades, and the looming threat of potential US tariffs. While some traders are seeking bargains within Asia, many are turning to Chinese equities, which are in the midst of a bull run driven by developments in artificial intelligence.
This sentiment reflects a reversal of the much-anticipated stock rotation from China to India. As India’s growth returns to a slower, pre-Covid pace amid declining consumption, foreign investors have pulled nearly $15 billion from Indian shares this year. This puts the country on track to surpass last year's record $17 billion in outflows, and the selloff has erased $1.3 trillion from India’s market value.
Challenges for India’s Stock Market
“Global investors would need to see sustained evidence of economic recovery and corporate earnings growth,” said Anand Gupta, a portfolio manager at Allianz Global Investors in Singapore. Investors are looking for signals of increased consumer spending, both in urban and rural areas, as well as positive corporate earnings reports. Despite a drop in India’s benchmark NSE Nifty 50 Index trading at 18 times forward earnings (down from 21 times in September), the market’s multiple still remains higher than those of all its emerging Asian counterparts.
Government projections show India’s economy will grow at a four-year low of 6.5% in the current fiscal year. Analysts predict that future growth will likely remain below the nearly 9% average seen in recent years.
Profit Downgrades Impacting Corporate Earnings
Corporate profits are also feeling the pressure. More than 60% of companies in the Nifty 50 Index saw their forward profit estimates downgraded last month, according to JM Financial Ltd. India’s earnings revision momentum — a measure tracking upgrades vs. downgrades — is among the weakest in the region, according to Bloomberg Intelligence. Despite this, some investors still see value in India’s market amid the ongoing selloff.
“The Indian market will recover. We continue to look for opportunities and hold what we have,” said veteran emerging-market investor Mark Mobius, who noted that while there are "no clear signs of bottoming," it is still a great time to look for bargains.
Easing Selling Pressure and Market Expectations
Selling by company founders and employees has also eased, further relieving some pressure on the market. In this quarter, insiders sold Rs 490 crore ($56.4 million), a significant drop from the average Rs 11,430 crore withdrawn in the previous eight quarters, according to Nuvama Wealth Management Ltd.
“We have started to gradually reduce our underweight positions in India as some names are starting to look reasonably valued,” said Julie Ho, a portfolio manager at JPMorgan Asset Management. However, she cautioned that overall market expectations remain high, and broad valuations still appear rich.
Lingering risks, such as potential US President Donald Trump’s tariffs and the growing likelihood of a US recession, are also making foreign investors wary. Indian stocks have historically shown a positive correlation with US equities, making them vulnerable to US economic shifts.
A Gradual Recovery in Sight
“We are getting there in terms of an attractive entry point in the market but I don’t see reasons for a vertical recovery,” said Rajeev Thakkar, chief investment officer at PPFAS Asset Management. He emphasized that any recovery would be gradual, driven by earnings growth rather than a sharp rebound.
