The "carnival" in the Indian stock market seems to be coming to an end. Affected by slowing corporate earnings, high valuations, and outflows of foreign capital, the benchmark stock index NIFTY has fallen about 7% from its historical peak.
On Tuesday, the Indian stock market recorded its largest single-day decline in about three weeks. The NIFTY50 fell 1.25% to 24472.1, with 47 of its constituent stocks declining. Meanwhile, the SENSEX index fell 1.15% to 80220.72.
Small-cap and mid-cap stocks fell by about 4% and 2.6%, respectively, marking their worst trading day since August 5; all 13 major industry indices declined.
On the morning of the 23rd, Goldman Sachs downgraded the Indian stock market from overweight to neutral, with a 12-month NIFTY target of 27,000 points, implying a 9% upside.
"The real pain point for the market is the poor performance of the broad market in the face of slowing earnings and foreign capital selling. As long as this trend continues, any intraday rebound will be short-lived," said Aditya Gaggar, director of Progressive Shares.
Indian stocks have retreated from their highs, with corporate earnings contracting.
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Since hitting a record high on September 27, the Indian stock market has seen a wave of profit-taking, with the NIFTY index falling about 7% from its peak.
Yesterday, the largest IPO in India - Hyundai Motor India - closed down 7.2% on its first day of trading. The market is increasingly worried that India will not be able to maintain the high valuation multiples it has enjoyed since 2021.
The valuation of the MSCI India Index is still nearly 24 times its 12-month forward earnings, while the five-year average valuation is about 21 times.Corporate profits are also contracting. Compared to the first quarter, the pace of profit recovery for Indian companies in the second quarter was lower than expected. Due to weak domestic and international demand, slowed government spending, and persistently high inflation globally, corporate earnings are advancing at a slow pace.
Among other stocks, Jana Small Finance Bank saw its share price fall by 10.4% yesterday due to a decline in net profit for the September quarter and a continuous deterioration in asset quality. Non-banking financial institution L&T Finance dropped by 7.1%, marking its largest decline since early March.
Foreign capital withdrawal, changes in Federal Reserve interest rate cuts... Indian stock market faces challenges
As of Monday, foreign investment institutions have been net sellers of Indian stocks for 16 consecutive trading days.
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said: "The trigger for this adjustment comes from the continued selling by foreign investors."
Indian stocks are facing competition from the Chinese market. Since a series of stimulus plans were introduced at the end of September, many overseas investors have chosen to invest in China and withdraw funds from India.
Analysts believe that due to the still negative market sentiment and lack of positive news, it seems difficult for Indian stocks to recover. Siddhartha Khemka, Head of Wealth Management Research at Motilal Oswal Financial Services Ltd., said:
"With expectations of moderate interest rate cuts by the Federal Reserve, the rise in U.S. bond yields has led to global market weakness, and capital outflows from emerging markets such as India. The second quarter earnings also show signs of slowing down, which weakens market sentiment.
Overall, we expect the market to continue to face pressure, driven by result-oriented actions."