Global investors are retreating from Indian stocks amid mounting concerns over high valuations, weak corporate earnings, and shifting focus towards AI opportunities in Asia, prompting a significant pullback that raises questions over India’s market momentum.
Global investors are trimming their exposure to Indian equities as the market loses some of the appeal that once made it one of the world’s most sought-after destinations, Bloomberg reported. Heavy valuations, weaker-than-hoped corporate earnings and the absence of a powerful artificial intelligence investment story have combined to cool enthusiasm, while money has increasingly shifted towards technology and AI-related opportunities in South Korea and Taiwan.
The pullback has been stark. Bloomberg said foreign funds have withdrawn about $25 billion from Indian stocks on a net basis this year, following record-selling earlier in the year as concerns over growth prospects and higher energy costs intensified. In March, outflows accelerated sharply, with investors dumping Indian equities at a pace that put the month on course for the steepest exodus on record.
That shift has left India looking expensive relative to many peers. The market is trading at about 17.6 times forward earnings, and the Nifty 50 carries a premium of roughly 77 per cent to MSCI’s emerging market benchmark, according to Bloomberg’s reporting. Foreign ownership of companies listed on the National Stock Exchange has fallen to a 17-year low, while India’s weight in the MSCI Emerging Markets Index has slipped to about 11 per cent from 16 per cent a year ago.
The change marks a reversal for a market that had long benefited from strong economic growth, infrastructure investment and a vast consumer base. Bloomberg has reported that investors who had previously been drawn to that narrative are now focusing more closely on weak profits, high oil prices and a softer rupee, which can pressure corporate margins and reduce returns for overseas holders. Trade tensions have eased somewhat, but that has not been enough to restore confidence in earnings.
Some institutions are already acting on that caution. Reed Capital Partners, a Singapore-based multifamily office, has exited its Indian portfolio entirely, while fund managers at Janus Henderson Investors and Vantage Point Asset Management have also reduced their exposure to zero over the past year or so, Bloomberg said. Even so, local investors have stepped in with about $60 billion of net stock purchases this year, helping to cushion the market. Morgan Stanley remains more constructive, saying India could enter a multi-quarter growth upcycle and projecting the BSE Sensex could reach 89,000 by June next year in its base case.
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