Indian stock markets are experiencing a correction driven by a slowing economy and a significant outflow of foreign capital. Domestic investors are showing resilience, but the long-term outlook remains uncertain.
Indian equities have been experiencing a downturn since September, driven by a cooling economy and a significant exodus of foreign investors. This trend has been particularly pronounced in sectors such as real estate, energy, and automobiles, as indicated by data from Goldman Sachs. While some analysts perceive this decline as a healthy correction, others express concerns about the sustainability of the Indian market in the face of these challenges.
The slowdown in India's economy, coupled with heightened US Treasury yields, has prompted foreign portfolio investors (FPIs) to shift their investments away from Indian equities. In 2024, FPI inflows into Indian equities plummeted by 99% to $124 million compared to the previous year, with outflows increasing sharply in recent weeks. Analysts attribute this shift to a risk-aversion sentiment among investors, who are seeking safer havens in US equities. Additionally, profit-booking by FPIs who previously reaped substantial gains in the Indian market is contributing to the downward pressure on equity prices.Despite the outflow of foreign capital, domestic investors have continued to inject significant funds into the Indian market. Since October, they have invested approximately $27 billion in Indian equities, partially mitigating the impact of the decline. This increase in domestic investment, driven by a surge in retail participation, has led to a mini-bubble that has been deflating since September. While the near-term outlook for Indian equities appears uncertain, some analysts remain optimistic about the long-term prospects of the market. They argue that the current correction presents an opportunity for investors to enter at more attractive valuations and capitalize on the underlying strength of the Indian economy.
Indian Equities FPI Outflow Economic Slowdown Domestic Investors Profit Booking Market Correction
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