India has enjoyed a historic stock market run over the past two years, as investors bought into the south Asian giant’s strong economic growth narrative and sought to reduce exposure to China. But much of the shine has come off Indian markets in recent months as a spate of weaker data and persistently high inflation has raised questions about the fundamentals underpinning the world’s fastest-growing G20 economy. Foreign investors sold off about $11.
2bn of local equities in October, a record monthly net outflow. A further $2.5bn was offloaded in November. Analysts say that “pull” factors were at play, with China’s recent stimulus measures luring back some foreign investors. Many foreign investors had also struggled to buy into the India fervour because of lofty stock valuations. “There is a wide acknowledgment that there is a slowdown,” said Aditya Suresh, head of India equity research at Macquarie Capital. “What people are grappling with is duration: how long?” International markets had cheered India’s economic resurgence since the Covid-19 pandemic, with Franklin Templeton in 2023 anointing the world’s most populous country the “next China”. Morgan Stanley foretold “India’s decade”, pointing to an “economic boom” led by offshoring, manufacturing, green energy and advanced digital infrastructure. Indian companies rushed to sell shares, buoyed by domestic investors ploughing savings into exuberant public markets, while the world’s fifth-largest economy joined benchmark bond indices in 2024. But India has begun to lose some of its momentum. GDP growth in the quarter ended September came in at just 5.4 per cent year on year, the lowest rate in nearly two years. The Reserve Bank of India in November cut its growth forecast for the 2024-25 financial year from 7.2 per cent to 6.6 per cent. Core industries such as mining, manufacturing — the focus of Prime Minister Narendra Modi’s flagship “Made in India” push — and construction also sagged in the quarte