Trouble for Indian stock markets unlikely to end soon, 3 charts show

While rising inflation and the end of global easy-money policies send Indian equities into a tailspin from their all-time highs, three charts show the pain is unlikely to end anytime soon. forced the country’s central bank to join global peers in raising interest rates.

The value of the Indian stock market has already fallen almost 20% from its peak in January of about $3.7 trillion dollars. The unsupportive economic backdrop, coupled with an unprecedented exodus of foreign investors and earnings estimates that look set to fall, are clouding the prospects for a recovery.

“We expect the markets to continue to correct from here,” said Benaifer Malandkar, chief investment officer at Raay Global Investments Pvt. “It is expected that by the second quarter, the most negative news, the outcome of the Fed’s actions will be priced in.”

Record withdrawal from Indian markets

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Record withdrawal from Indian markets

Flight for foreigners

Overseas investors have sold Indian stocks at a record pace, withdrawing about $32 billion from the market since September. The withdrawal of foreigners is part of a wave that is also hitting countries like South Korea and Taiwan.

“India is not isolated as it is part of the emerging markets basket, and it is clear that the emerging markets are out of favor,” said Malandkar of Raay Global. “Until US Fed rates are at their peak, we will see redemptions in emerging markets.”

India sees no cuts in consensus earnings estimates yet

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India sees no cuts in consensus earnings estimates yet

Rosy Estimates

The decline in Indian equities so far has mainly been caused by a fall in valuations. Earnings estimates for the NSE Nifty 50 Index have yet to clock in a meaningful decline as seen in MSCI Inc.’s broadest measure. for Asian equities.

In recent weeks, strategists at Sanford C. Bernstein Ltd., Bank of America Corp. and JPMorgan Chase & Co. expressed concern about the profit optimism that surrounded India. Pending a recovery in valuations, cuts in estimates are likely to pull equities further down.

Market size weakening

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Market size weakening

Suffering from small caps

Smaller stocks have been hit harder by investor risk aversion, with indicators of small- and mid-cap Indian stocks already entering bear markets. Market size has weakened, with just 16% of the S&P BSE 500 Index stocks trading above their 200-day average level, the lowest level in two years.

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