Key Takeaways
- Foreign funds have withdrawn $25 billion from Indian stocks this year.
- India's stock market is trading at a valuation premium over emerging market benchmarks.
- Investors are shifting focus to South Korea and Taiwan for AI and tech opportunities.
Global investors are reducing their exposure to Indian stocks, with some fund managers cutting their allocations to zero, according to Bloomberg. This shift marks a significant reversal for a market that had been among the world’s most popular investment destinations.
Reed Capital Partners, a Singapore-based multifamily office, exited its entire Indian portfolio about a month ago. Gerald Gan, the firm’s chief investment officer, stated that there was little left to support a strong investment case for India as the country’s growth story weakened.
Foreign portfolio ownership of companies listed on the National Stock Exchange of India has fallen to a 17-year low. India has also become the least favored market in Asia, according to a recent Bank of America investor survey.
Fund managers at Janus Henderson Investors and Vantage Point Asset Management have also reduced their exposure to India to zero over the past year or so. The Nifty 50 Index is now close to its mid-2024 level and is on track to end a decade-long run of annual gains.
High oil prices and a weaker rupee have added to investor concerns. India’s dependence on oil imports has increased pressure on its current account, while currency depreciation has reduced dollar returns for overseas investors and raised questions about the strength of corporate profit margins.
Local institutions have helped support the market, making net stock purchases of about $60 billion this year, according to BSE data. Small cap stocks have performed better in some areas, particularly companies expected to benefit from the country’s expanding data center industry.
Some analysts remain optimistic. Morgan Stanley expects India to enter a multi-quarter growth upcycle and forecasts that the BSE Sensex could rise to 89,000 by June next year in its base case. However, foreign investors are becoming more selective and are demanding stronger evidence of job creation, manufacturing growth, and foreign direct investment.
India’s share of the MSCI Emerging Markets Index has declined to about 11 percent from 16 percent a year earlier. Investors say the decline reflects India’s weaker performance against technology-focused markets and could encourage further selling by funds that closely track emerging market benchmarks.
There was little left to support a strong investment case for India as the country’s growth story weakened.
Gerald Gan, Chief Investment Officer, Reed Capital Partners
