Brothers and sisters, simply pay attention to the recent Indian market.
The Indian stock market continues to plummet
On November 4th, the Indian stock market continued to plummet, with the Mumbai Sensex index dropping 1.62% and the benchmark Nifty 50 index falling 2% during trading, the largest drop since October 3rd.
Why did the Indian stock market plummet? There are four main reasons for market analysis.
1. Foreign capital selling hits market sentiment
The Indian stock market has been significantly affected by a large sell-off by foreign institutional investors. As they seek to adjust their investment direction, expectations of China's stimulus plan have prompted many foreign investors to transfer funds out of India.
Nifty and Sensex have once again entered a downward trend, mainly due to a significant sell-off by foreign investors, "said Santosh Mina, research director at Swastika Investmart Ltd
Mina added, "The expectation of China's upcoming new stimulus policies has driven funds to flow from India to China, while foreign investment is also locking in profits before the upcoming US election
2. Profit taking before the US election
As the US presidential election approaches, many investors choose to take profits before potential market fluctuations related to the election.
This profit taking behavior further increases the downward pressure on the Indian market as foreign investors readjust their investment portfolios to cope with election results and potential impacts.
3. Domestic investors are cautious in their attitude
In the context of global uncertainty, domestic institutional investors in India appear particularly cautious. Due to the dominance of foreign capital in the selling trend, domestic institutional investors are hesitant, resulting in a lack of buying support in the market. Their absence at this critical stage further exacerbated the downward trend.
4. Weak company performance
The profit forecasts of major Indian companies' stocks have also been significantly lowered, affecting investor sentiment.
Analysts from Motilal Oswal Financial Services pointed out that although sales of 34 Nifty component companies increased by 5%, earnings before interest, tax, depreciation, and amortization (EBITDA) only grew by 1%, and net profit almost stagnated. Concerns about domestic profitability have intensified, and many companies have failed to meet their expectations for net profit (PAT) and EBITDA.
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, stated that the Indian market is facing the challenge of slowing profit growth. Nifty's constituent companies' earnings per share (EPS) growth for fiscal year 2025 may be below 10%, making it difficult to rationalize the current valuation, which is 24 times the expected earnings for fiscal year 2025. In this severe profit environment, foreign investors may continue to sell, thereby limiting the market's rebound potential
Foreign investors have sold over billions of dollars worth of Indian stocks in the past month
Data shows that in October, foreign investors sold over $10 billion worth of Indian stocks. HSBC stated that foreign capital is raising funds from the Indian and Korean markets to invest in the Chinese stock market, with the largest amount of funds being withdrawn from the Indian stock market.
According to data from the National Securities Depository and Clearing Corporation of India, foreign investors withdrew up to 940 billion rupees (approximately 11.2 billion US dollars) from the Indian stock market in October, setting a record for the largest monthly outflow in history. This sell-off was mainly influenced by the overvaluation of domestic stocks in India and the more attractive valuation of Chinese stocks.
According to a report by Citigroup, the continued outflow of foreign capital may drag down the recent performance of the Indian stock market. After the adjustment in October, the valuation of the Indian stock market has fallen back from its peak, but on most indicators, the valuation is still nearly one standard deviation higher than the long-term average.
Goldman Sachs recently downgraded its rating of the Indian stock market from overweight to neutral, and warned that the overall valuation has reached 24 times the expected profit, at a historical high, which is the most common concern for investors. Goldman Sachs predicts that as the cyclical slowdown of the economy drags down corporate profits, the Indian stock market may experience volatility in the next 3 to 6 months.