India’s $556 Billion Equity Rout Seen Worsening as Growth Cools

Investors are expecting Indian stocks to post another quarter of losses as a slowdown in economic growth and sticky inflation hurt corporate earnings and foreign flows.

The benchmark NSE Nifty 50 Index will likely drop at least 5% in the three-months through March, according to a majority of 22 strategists and fund managers in an informal survey conducted by Bloomberg early this month. Concerns over geopolitical tensions during Donald Trump’s second presidency add to headwinds for local stocks.

READ: India’s Record-Breaking Stock Run Faces Bigger Hurdles in 2025

After hitting multiple new highs last year, India’s nearly $5 trillion equity market has come under pressure due to foreign outflows sparked by fears over falling consumption. The aggregate market value of companies included in the MSCI India Index has declined by $556 billion after the gauge fell more than 13% from a September peak.

“Indian markets are navigating a bout of uncertainty,” said Mohit Khanna, a fund manager with Purnartha Investment Advisers Pvt., which manages more than $250 million of assets. “The pessimism can be attributed to multiple domestic and global developments that took place in 2024 and will impact local shares over a short term.”

Worries over India’s growth ambitions are intensifying after the latest government figures show the economy will expand 6.4% in the current fiscal year, well below the 8% average of the past three years. Vehicle sales fell in December, while consumer companies have flagged challenging market conditions.

HSBC Holdings Plc. strategists including Herald van Der Linde downgraded Indian stocks to neutral last week, saying investors will likely re-evaluate their positions after consensus reduced FY25 earnings growth estimates for the Nifty 50 to 5% from 15%.

While some of the survey respondents see negative returns for the benchmark on a full year basis, one-third of them expect the Nifty 50 gauge to rise 10% to 15% in 2025. This is mainly seen on the back of continued flows from domestic investors.

The Nifty 50 fell 8.4% last quarter but still capped an annual advance of 8.8% in 2024, its ninth straight year of gains.

“If we step back from the near term, we are at the inflection of an economic boom,” said Vikas Gupta, chief investment strategist at Mumbai-based OmniScience Capital, who estimates a more than 10% climb in local shares. “Interest-rate cuts will define the broader direction of the Indian stock market.”

READ: Indian Investors Hyper-Focused on Earnings Growth Amid Headwinds

Respondents of the survey also expect health-care and information technology stocks — beneficiaries of the record-low rupee — to be key gainers this year. None of the 22 respondents were bullish on real estate after the sectoral gauge’s more than 110% rally over the last two years. 

“We are looking for an opportunity to upgrade our position” once earnings growth momentum turns positive, Dong Chen, chief Asia strategist at Pictet Wealth Management said at a briefing on Thursday. Chen, who didn’t participate in the survey, retained a neutral allocation on India.

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