Foreign Capital Outflows Continue Amid Fundamental Concerns and China's Rise
"Decline to Be Limited from Q2... Outlook: Low in the First Half, High in the Second"
This year, the Indian stock market, which has recorded a notable decline among major global markets, is expected to rebound starting in the second half of the year.
On the 26th, Geun-A Kim, a researcher at Hana Securities Research Center, stated this in the report titled "Emerging Market Strategy: Background and Outlook of the Indian Stock Market Adjustment Phase," maintaining a "weight increase" opinion and a "low in the first half, high in the second half" outlook for the Indian stock market.
Researcher Kim said, "Given the premise that the recovery of the Chinese stock market remains valid and that U.S. President Donald Trump will announce mutual tariff target countries in early April, it is difficult to expect a rapid rebound in the Indian stock market for the time being," but added, "From the second quarter, the decline will be limited and it will gradually rebound."
As of the 24th, the NIFTY50, the representative stock index of India, is down 13.9% from its peak in September last year and 5% from the beginning of the year. Researcher Kim explained, "Among major global stock markets this year, except for Indonesia, India is the only one recording negative returns," adding, "From a supply and demand perspective, local institutions and individual investors continue net buying, whereas foreign investors continue net outflows."
Foreign investors have been net sellers of $23.7 billion in the Indian stock market since October last year. This amount is double the cumulative net inflow of $12 billion from January to September of the same year.
Researcher Kim identified three main reasons for the intensified foreign capital outflow from the Indian stock market: unresolved concerns about fundamentals, Trump risk, and the revival of the Chinese stock market.
First, Kim pointed out fundamental concerns, saying, "Doubts about India's high-growth momentum began to increase due to poor indicators. Furthermore, as the Indian government continuously lowered its annual growth forecast to 6.4% for 2025, investment sentiment has further weakened." He also mentioned, "India, which imposes higher tariffs compared to major global countries, is highly likely to be the first target of Trump's mutual tariffs," adding, "It is a situation where we cannot be reassured until early April when the review period ends." According to Goldman Sachs, about 4% of India's GDP is expected to be exposed to this U.S. mutual tariff risk. Lastly, he evaluated that "In the past, when the Chinese stock market was in a long-term slump, the attractiveness of the Indian stock market was highlighted," but recently, the Indian stock market has been more affected by the strong turnaround in the Chinese stock market triggered by deep-sea liquidity.
However, despite these circumstances, the Indian stock market is analyzed to show a "low in the first half, high in the second half" trend and rebound this year. Researcher Kim said, "The consensus GDP for the third quarter, to be announced on February 28, is 6.3%," forecasting that "as the economic recovery is confirmed, investment sentiment will gradually improve." Additionally, active policy support such as the Indian government's infrastructure development, consumption promotion policies, and interest rate cuts are also expected to aid the recovery.
Researcher Kim concluded, "Volatile market conditions are expected for the time being, but it will rebound from the second half of the year," and analyzed, "The long-term growth story of India is considered valid."
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