"Toast is Over" Indian Stock Market, Reasons for Spreading Pessimism

Monthly Decline in Indian Stock Market Hits Four-Year High
Foreign Investors' Selling Exceeds $10 Billion per Month

Bearish sentiment is spreading regarding the Indian stock market, which has been on a high-growth trajectory for years. As expectations for the high growth rate that underpinned the market's rise gradually diminish, foreign capital is significantly withdrawing.

Major foreign media reported on the 4th (local time) that "Since March 2020, the Indian stock market, which has risen more than threefold, is facing negative factors such as weakening corporate earnings, signs of an economic recession, and excessive personal loan restrictions imposed by the central bank, causing increasing concern among foreign investors."

The Indian stock market, which had been hitting record highs daily this year, has sharply declined since last month. The benchmark indices, Nifty 50 and Sensex, fell by 6.2% and 5.8% respectively last month. This marks the largest monthly drop since March 2020. During the trading day, both indices further extended losses, dropping by 1.5% and 1.4% respectively, returning to levels seen in early August.

Last month, foreign investors sold over $10 billion worth of Indian stocks. This is the largest monthly foreign selling since the COVID-19 pandemic. It is expected that funds from the Indian stock market flowed to China due to renewed optimism about China's economic growth following a series of stimulus measures introduced since September by the "world's factory" origin.

According to investment bank Goldman Sachs, the recent poor performance of several Indian companies is cited as one of the reasons for the stock price decline. On the 22nd of last month, Goldman Sachs downgraded its investment rating on Indian stocks from overweight to neutral, stating that "due to the economic slowdown, corporate earnings forecasts are deteriorating, and downward revisions of earnings per share are accelerating."

Sunil Tirumalai, UBS's chief emerging markets strategist, expressed concern, saying, "(Tracking the extent of earnings downgrades for Indian companies) the situation is quite serious. Even some essential consumer goods companies are failing to deliver adequate results."

Signs are also emerging that the high economic growth, which had driven the Indian stock market, is slowing down. India's GDP for the second quarter (April to June) was 6.7%, the slowest growth rate among the previous five quarters and below market expectations of 6.9%.

Experts believe that for the Indian stock market to rebound, Indian authorities need to implement various measures to prevent a recession. A cut in the benchmark interest rate is also considered an option. The Reserve Bank of India (RBI), India's central bank, kept the repo rate steady at 6.50% for the tenth consecutive time last month. Mukherjea from Marcellus said, "If appropriate monetary and fiscal measures are taken, the difficult situation could be overcome by Christmas 2025."