Indian Stock Markets Near Long-Term Averages Amid Economic Shifts

Valuations in Indian stock markets are nearing their long-term averages following a 15% correction since September 2024, per Antique Stock Broking. Analysts expect current foreign portfolio outflows to ease, driven by factors like improving economic conditions and monetary measures, potentially boosting market sentiment.

After a significant 15% market correction since September 2024, Indian stock market valuations are approaching long-term averages. A report from Antique Stock Broking highlights the market cap-to-GDP ratio's substantial decline, remaining slightly above +1 standard deviation, primarily due to a surge in equity supply in recent years.

The report notes that foreign portfolio investor (FPI) outflows from emerging markets, particularly India, totaled about USD 54 billion since October 2024, with India's share nearing USD 22 billion. This movement is largely attributed to a downgraded growth outlook and previously rich market valuations. However, experts predict that selling pressure may soon abate, with FPI equity flows currently below -1 standard deviation in terms of market capitalization.

Optimism surrounds the possibility of the FPI equity outflow receding short-term, due to more favorable valuations and anticipated economic growth, bolstered by monetary and fiscal policy adjustments. Furthermore, despite India's robust economic fundamentals, low FPI ownership could lead to fresh capital inflows as market sentiment improves. The cyclical nature of India's growth slowdown stems from monetary and fiscal tightening, influenced by electoral activities. Recent increases in government expenditure and looming fiscal measures may further mitigate the slowdown, potentially enhancing earnings forecasts.