Over the past year, domestic institutions have invested a whopping $82.2 billion in India’s equity markets while foreign portfolio investors (FPI) sold $27.2 billion worth of shares. Despite this huge infusion of liquidity, the benchmark indices remain more or less where they are.
On Wednesday, the Nifty 50 closed at 24,715.05, about 6% lower than the peak of 26,216.05, which was achieved on September 26, 2024. The Sensex ended Wednesday’s session at 80,567.71, down 6.14% over the record high of 85,836.12 last September. During the same period, the broader indices, the BSE 500 and BSE Midcap also declined by 7.03% and 7.23% respectively.
FPI pullback keeps indices under pressure
FPIs have been concerned about the expensive valuations and also tepid corporate earnings, and are allocating less to India than to other markets. As of August 27, the MSCI benchmark weighting (ex-Japan) for India was 15.8% compared with 29.3 for China and 18.6 for Taiwan. Indeed, as experts at Morgan Stanley point out, FPI portfolio positioning is at its weakest since 2000, when it started looking at the data.
At 24,715, the Nifty50 currently trades at a price/earnings multiple of 22.1 X estimated one-year forward earnings. Compared to that, Taiwan trades at 18.3 times, China at 14.84 times, Indonesia at 12.8 times and South Korea at 10.38 times.
Earnings disappoint, global peers outperform
FPIs have also been concerned about disappointing corporate results. For a sample of 3,401 companies (including banks and financials), net profits were up 6% year-on-year in the June quarter, on the back of an increase in revenues of 6% y-o-y. The profits were boosted by a 16% jump in other income.
Following the downgrades post the earnings season, net profits for the Nifty50 are now estimated to grow by about 10% in FY26 and by about 17.5-18% in FY27. This comes of the very low growth of just about 6.5% in FY25.
Consequently, money has moved to other markets. For instance, a sluggish economic backdrop notwithstanding, Chinese stocks are surging. The benchmark CSI 300 has gained around 10% since the end of July, compared with just 1.6% for MSCI’s all-country index. Bloomberg reported that last week, Goldman strategists, including Kinger Lau, raised their year-end price target for the CSI 300 index, citing factors including attractive valuations, high-single-digit trend profit growth, retail interest and potential asset reallocation.