India's stock market is facing a downturn as foreign investors sold over $10 billion worth of Indian stocks recently. The decline comes amid weakening corporate earnings and concerns over high stock valuations. The NSE Nifty 50 index dropped 6% in October, marking its worst monthly performance since March 2020, while the BSE Sensex also saw a similar decline.
According to Bloomberg, foreign institutional investors have been net sellers of Indian stocks, contributing to the market's weak performance. Despite a recent reduction, India's current stock valuations remain higher than historical averages. Citi analysts noted that high valuations are deterring investors, and continued outflows could further impact market performance.
Goldman Sachs downgraded its rating for Indian stocks from buy to neutral, citing potential market volatility in the next 3 to 6 months due to slowing economic growth and pressure on corporate earnings. The firm highlighted that India's overall stock valuation has reached 24 times its expected earnings, a historically high level.
Options traders are betting on significant market fluctuations with the upcoming U.S. elections. A surge in NSE Nifty 50 options contracts with strike prices of 24,500 for calls and 24,400 for puts indicates traders are preparing for volatility. These options have become some of the most popular contracts on the local exchange as traders anticipate fluctuations linked to the U.S. election outcome.
There is evidence of investor movement from Indian to Chinese markets as economic conditions in India slow. As of late October, 11 out of 18 MSCI India companies reported earnings below expectations. This environment caused Hyundai Motor India's IPO to drop by 7.2% on its first trading day.
Analysts, including JM Financial's senior VP Avani Bhatt, suggest investors are seeking markets with lower valuations, such as China. Reports show that some Asian funds withdrawing from India are now investing in China, where valuations appear more favorable, especially after recent government stimulus measures.
