India struggles to shake off pessimism after $1.3 trillion rout

By Chiranjivi Chakraborty and Abhishek Vishnoi

Global fund managers are in no rush to load up on Indian stocks even after an unprecedented losing streak has lowered equity valuations.

That’s because the market is still grappling with challenges posed by an economic slowdown, profit downgrades and potential US tariffs. Traders looking for bargains within Asia are gravitating toward still-cheap Chinese equities, which are in the middle of a bull run sparked by developments in artificial intelligence.

The sentiment illustrates how the highly touted stock rotation from China to India has gone into reverse as growth in the South Asian economy returns to a relatively slower pre-Covid norm amid a decline in consumption. Overseas investors have pulled almost $15 billion from local shares so far this year, putting outflows on track to surpass the record $17 billion registered in 2022. The selloff has wiped out $1.3 trillion from India’s market value.

“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 want to see increased consumer spending in urban and rural areas and positive commentary from corporates, he said.

India’s benchmark NSE Nifty 50 Index is trading at 18 times forward earnings, compared with 21 times in September. But despite the drop, the market’s multiple remains higher than that of all its emerging Asian peers.

Latest government figures show India’s economy will expand at a four-year low of 6.5% in the current fiscal year. Some analysts expect growth in the coming years to remain well below the nearly 9 per cent average seen in the past three years.

Corporate profits have also taken a hit in this environment. More than 60 per cent of companies comprising the Nifty 50 Index saw downgrades to their forward profit estimates last month, according to JM Financial Ltd. India’s earnings revision momentum — a measure that tracks how upgrades fare against downgrades — is among the weakest for developing economies in the region, according to Bloomberg Intelligence.

Some investors are finding value amid the relentless selloff.

The market is seeing “no clear signs of bottoming, but it is a great time to look for bargains,” said veteran emerging-market investor Mark Mobius. “The Indian market will recover. We continue to look for opportunities and hold what we have.”

At the same time, selling by company founders and employees has also become less intense, easing pressure on the market. The cohort sold 4.9 billion rupees ($56.4 million) this quarter, after withdrawing an average 114.3 billion rupees in the last eight quarters, according to data from 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. “It is important to note that overall market expectations are still high, and broad valuations remain rich.”

Lingering risks such as US President Donald Trump’s reciprocal tariffs, and his assertion that India charges the US higher levies than the US charges it, are likely to keep foreign investors on the sidelines. A growing chance of a recession in the US is another dampener given that Indian stocks have a positive correlation with US equities.

“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. “It will be more gradual and led by earnings.”