Indian stock market woes not likely to end soon, 3 charts show

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As soaring inflation and the end of global easy-money policies drag Indian stocks down from all-time highs, three charts show the pain isn’t likely to end anytime soon. forced the country’s central bank to join its global counterparts in raising interest rates.

The value of the Indian stock market is already down almost 20% from its January high of around $3.7 trillion. The lackluster economic backdrop, combined with an unprecedented outflow of foreign investors and earnings estimates that look set to plummet, are clouding the outlook for a rebound.

“We expect the markets to correct further from here,” said Benaifer Malandkar, chief investment officer at Raay Global Investments Pvt.

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Record withdrawal from Indian markets

Foreign flight

Foreign investors have sold Indian stocks at a record pace, taking about $32 billion off 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 market basket, and clearly emerging markets are no longer in favor,” Raay Global’s Malandkar said. “Until the US Fed rate peaks, we will see redemptions happening in all emerging markets.”

India has yet to see cuts in consensus earnings estimates

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India has yet to see cuts in consensus earnings estimates

Pink ratings

The decline in Indian stocks has been mainly caused by the contraction in valuations so far. Earnings estimates for the NSE Nifty 50 index have yet to register a significant decline like that seen in MSCI Inc.’s broader measure for Asian stocks.

In recent weeks, strategists at Sanford C. Bernstein Ltd., Bank of America Corp. and JPMorgan Chase & Co. have expressed concerns about the earnings optimism surrounding India. Pending a rebound in valuations, lower estimates are likely to drive equities further lower.

Diminishing Market Scope

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Diminishing Market Scope

Outstanding Small Caps

Small stocks have been hit harder by investor risk aversion, with Indian small- and mid-cap stock gauges already entering bear markets. The breadth of the market has weakened, with just 16% of stocks in the S&P BSE 500 index trading above their 200-day average level, the lowest level in two years.

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