Equity markets' pain to worsen as economy, corporate profits slow

The nearly five-month-long slide in Indian equities could continue since the slowdown in corporate earnings growth and the exodus of foreign investors will persist as the world’s fifth-largest economy sputters, fund managers and analysts said. 

Since hitting its all-time highs in late September, the benchmark Nifty 50 index has tumbled about 13 per cent, much steeper than a roughly 2 per cent drop in both its Asian and global emerging market peers. 

The slide was triggered by a sharp slowdown in profit growth in India’s top companies. The earnings growth of the Nifty 50 companies was 5 per cent in the October-December quarter, a third straight quarter of single-digit increases after two years of double-digit jumps, according to brokerage data. 

 

That was largely due to weakening urban demand amid high prices and modest income growth. In turn, India’s economic growth is expected to slow to a four-year low of 6.4 per cent this financial year. “With corporate earnings missing expectations and the rising uncertainty over US tariffs, markets’ returns across the board could moderate further,” said Harsha Upadhyaya, chief investment officer of equity and president at Kotak Mutual Fund, which manages assets worth about $56 billion. 

Most analysts expect the market weakness to persist until at least the end of March. 

Weak profits, strong sales

  As the growth in what was once the world’s fastest-growing economy stalls, foreign investors too have pulled out in droves. They had bought $12.1 billion worth of Indian stocks from the start of 2024 until the markets peaked in late September. Since then, they have sold $25 billion worth, of which $12.31 billion has come since the start of 2025. 

Fund managers’ allocations to India are at a two-year low, a Bank of America survey released this week showed, with a 19 per cent net underweight position.  Only Thailand fared worse among Asian countries.  

China’s recent performance has also sucked away foreign funds, said Sat Duhra, portfolio manager on the Asia ex-Japan equity team at Janus Henderson Investors.