The Ugly Side Of India's Stock Market
should we care?
It’s Tuesday, aka “Momentum Day,” around here. Why? Because the week’s gears are in full swing, it’s the perfect time to add fuel to your entrepreneurial fire.
But before we start, here’s a dose of positivity for you:
The future depends on what you do today
Now, let’s get started…
Are foreign investors losing faith in India?
It seems foreign investors have packed their bags and are leaving the Indian equity market - ₹22,420 crore gone just this month. Yep, that’s a big number! So far, in 2024, they’ve taken out ₹15,827 crore. What’s driving them away? Let’s break it down together.
1. Are we too pricey for our own good?
Let’s start with the obvious. India’s stock market has been flying high, and while that’s usually a good thing, it’s turning out to be a double-edged sword. You see, when valuations get too high, investors start questioning if they’re really getting their money’s worth. Why invest in an overpriced market when you can get better value elsewhere?
Think of it like this: If you could buy a perfectly good car for ₹10 lakh, why would you spend ₹15 lakh on the same car? That’s what foreign investors are asking themselves about Indian stocks. High valuations are making India less attractive compared to other emerging markets.
2. The “Buy China, Sell India” trend
Now, let’s talk about China. It’s like that kid on the block who just got a fancy new toy - China’s stimulus package. Lower valuations and economic reforms have made Chinese markets irresistible to FPIs.
Himanshu Srivastava from Morningstar explained it perfectly: foreign investors are shifting their focus from Indian to Chinese stocks. And the numbers back this up. In October, FPIs pulled out ₹94,017 crore from Indian equities - the worst monthly outflow we’ve seen in a while. Meanwhile, China’s markets have been soaking up these investments like a sponge.
3. The allure US dollar and treasury yields
If you were a foreign investor, where would you put your money: in a volatile market or a safe, steady one? That’s the question FPIs are answering with their wallets. The rising US dollar and Treasury yields are making the US market the obvious choice for many.
The US offers strong economic prospects and a sense of stability, which is hard to resist, especially in uncertain times. This trend has been so strong that it’s even got a nickname - the “Trump Trade.”
4. The “Trump Trade” effect
There’s been a lot of talk about the “Buy China, Sell India” strategy, but let’s not ignore the “Buy US, Sell Emerging Markets” trend. With Trump’s US presidential win, US markets have been outperforming India by a wide margin.
Here’s the data: Since September, Indian markets have fallen by 10%, while US markets have climbed by 10–12%. That’s a huge gap! It’s not just about China; the US is scooping up a lot of the money that’s leaving India.
The Silver Lining
It’s not all doom and gloom, though. Foreign investors haven’t completely abandoned India. While they’re pulling money out of equities, they’ve invested ₹1.06 lakh crore in the debt market this year.
Debt markets offer a safer, more stable option for investors. In November alone, FPIs invested ₹42 crore in the general debt limit and ₹362 crore in the voluntary retention route (VRR). So, there’s still some love for India - just not where we’d hoped.
What’s Next?
Experts believe that FPI inflows will remain subdued for a while. Akhil Puri from Forvis Mazars predicts that we might not see a turnaround until January. Until then, market sentiment is likely to stay weak.
So, what do we do? For starters, India needs to focus on creating a more investor-friendly environment. And as everyday investors, we need to keep our eyes on the long game.
So, that’s it for today! See you tomorrow 👋
