Global capital outflow, Indian stock market hits historic low

Due to increasing market concerns over the slowdown of India's economic growth and overvalued stock valuations, the Indian stock market has experienced a historic sell-off, with the benchmark index declining for the 10th consecutive day, reaching record highs.

On March 4th, Bloomberg reported that the massive withdrawal of global funds is the main driver of this downturn. Since the beginning of this year, foreign investors have pulled nearly $14 billion from the Indian market. Daljeet Singh Kohli, head of equities at Roha Asset Managers' alternative investment fund, stated:

"Investor sentiment has been greatly impacted. Although most negative factors have been digested by the market, overall sentiment has taken a severe hit."

The rapid shift in sentiment in the Indian market is surprising. Just last September, India was the preferred investment destination for most emerging market fund managers. Currently, the Nifty 50 index has almost given back the 16% gain seen after the Indian elections in May of last year. It fell 0.2% today.

This market correction has significantly affected retail investor sentiment, especially among younger investors who have not experienced a major market downturn in the past five years. Data shows that the proportion of small investors in cash equities on the National Stock Exchange of India has dropped to a nine-month low in January. Herald van der Linde, an Asian strategist at HSBC Holdings, pointed out:

"Two-thirds of investors in India are novices who have never experienced a bear market. If the market remains weak, this poses a risk to the sustainability of domestic fund flows."

Despite the challenges, some analysts point out that recent measures taken by the Indian government to boost consumption are expected to support the stock market. Additionally, oversold technical indicators and a decrease in traders' hedging demand also suggest that the domestic stock market may rebound in the short term.

Citigroup upgraded its rating on Indian stocks to "Overweight" last month, citing "lower valuation requirements." JPMorgan portfolio manager Julie Ho also expressed optimism about the value of Indian lending institutions and real estate investment trusts.

However, weak corporate earnings performance and relatively high valuation premiums compared to emerging market peers have led to a loss of favor among fund managers for India. Candriam fund manager Vivek Dhawan stated, "We believe this round of adjustment is not yet fully over, but it may have entered its final stage. The Indian stock market, especially the mid and small-cap sectors, may still face volatility."

Risk Warning and Disclaimer

The market carries risks, and investment should be approached with caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk