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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% average seen in the past three years.
Corporate profits have also taken a hit in this environment. More than 60% 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.
