On the shoulders of giants: India's wobble, US will, China's reawakening

India faces fork in the road as outflows overshadow growth

India and the US — two of the world’s major markets and standout performers — have shown divergent performances over the past month.

India’s benchmark National Stock Exchange Nifty 50 has declined 5 per cent from its peak of 26,216 reached on September 26. In contrast, the S&P 500 in the US has increased by 2 per cent during the same period, achieving several new highs.

On Friday, both the S&P 500 and the Dow Jones recorded their sixth consecutive week of gains — the longest winning streaks since late 2023. Conversely, the domestic Nifty and S&P BSE Sensex noted their third straight weekly losses, marking their longest losing streak since August 2023.

While India and the US haven’t moved in tandem daily, both have largely been in lockstep since the pandemic.

So, what accounts for the recent divergence?

The rally in US markets is supported by a resilient economy, interest rate cuts by the Federal Reserve, and largely positive earnings reports. On the other hand, India’s recent downturn has been triggered by over $9 billion in outflows from foreign portfolio investors (FPIs), disappointing earnings from large corporates, and doubts about the strength of underlying economic momentum.

“India’s equities are facing triple negatives: weakening gross domestic product growth, high earnings per share expectations (17 per cent), and historically high multiples (23x),” said a report from Macquarie last week.

The foreign outflows coincide with Beijing’s policy measures to boost domestic demand, which have led to a 30 per cent surge in local stocks — most of which still trade below a price-to-earnings multiple of 15x.

Experts caution that India’s relatively high valuations compared to China may continue to dampen FPI flows, potentially weighing on India’s short-term performance against global and emerging markets.