Global investors are reducing their exposure to Indian stocks, with some fund managers cutting their allocations to zero as high valuations, weak corporate earnings and the lack of a strong artificial intelligence investment theme weigh on the market, Bloomberg reported.
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, said 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 shift marks a reversal for a market that had been among the world’s most popular investment destinations. India’s strong economic growth, infrastructure expansion and large consumer market had previously attracted global funds. However, investors are now directing more money toward artificial intelligence and technology opportunities in South Korea and Taiwan.
Indian equities are trading at about 17.6 times forward earnings. Although this is slightly below the market’s historical average, Indian stocks remain considerably more expensive than their emerging market peers. The Nifty 50 Index is trading at a valuation premium of about 77 percent over MSCI’s emerging market benchmark.
Foreign funds have withdrawn about $25 billion from Indian stocks on a net basis this year, redirecting capital to other markets. The Nifty 50 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.
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