Indian market capital has dropped to its lowest level $890 billion in eight months, declining by over since reaching its peak in September 2024.
Indian market capital of all listed firms on the Bombay Stock Exchange (BSE) has dropped below $5 trillion for the first time in eight months. This decline is a result of persistent selling pressure in Indian equities, driven by global market declines and sustained foreign investor outflows.
The global selloff has been exacerbated by concerns over India’s deepening economic slowdown and muted earnings expectations for the December quarter. Uncertainty surrounding US tariff policies under the Trump administration and the possibility of fewer rate cuts by the US Federal Reserve have also contributed to the negative sentiment.
Currently, the combined market capitalization of BSE-listed companies stands at $4.81 trillion, a level last observed on May 13, 2024. This represents a significant decrease from $5.17 trillion at the beginning of the year, reflecting a loss of approximately $360 billion. Compared to the peak in September 2024, the market cap has fallen by over $890 billion from $5.7 trillion.
The Indian government’s latest economic outlook predicts GDP growth at 6.4% for the current fiscal year, the slowest rate in four years, signaling a return to pre-COVID growth levels. Various global institutions offer differing growth projections: the International Monetary Fund forecasts an average growth rate of 6.5% over the next few years, the World Bank projects 6.7%, and Goldman Sachs predicts a more conservative 6% for the fiscal year ending in March 2025.
Exacerbating market pressures, the Indian rupee plummeted to a historic low of 86.40 against the US dollar, driven by robust US non-farm payroll figures and a strengthening dollar index. Concurrently, oil prices soared to their peak in more than three months due to expanded US sanctions disrupting Russian crude supplies, heightening global uncertainties. On a more positive note, India’s annual retail inflation decreased to 5.22% in December from 5.48% in November, offering a glimmer of hope for the markets. Nevertheless, investors remain cautious as they await the release of the US Producer Price Index (PPI) data tomorrow.
Analysts have pointed out that recent GDP downgrades and slowing corporate earnings, combined with high valuations, are putting significant pressure on market sentiment. They anticipate increased volatility in the short term, with factors such as the 2025 budget, Q3 earnings results, RBI policy decisions, and changes in US trade policies likely to shape market trends.
Despite a recent market correction, Kotak Institutional Equities remains cautious about Indian markets. They cite overvalued stocks, limited potential for earnings growth, aggressive assumptions in various sectors, and a challenging global economic environment with high bond yields and interest rates.
The brokerage firm notes that inflated valuations are a result of retail investors buying without considering prices and domestic institutions making forced purchases. Retail investors focusing on returns rather than fundamentals have led to unrealistic valuations, with many stocks trading at high multiples based on weak narratives. While some retail investors may continue to buy during market dips, this behavior is becoming unsustainable.
Kotak emphasizes that several stocks with strong narratives are still overvalued, despite significant corrections in the past few months. These stocks demonstrate a disconnect between market capitalization and fundamentals, with retail investors holding significant positions. The increase in retail participation and share prices until mid-2024 has exacerbated this misalignment, indicating potential challenges ahead for these companies.
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.