Investors are anticipating another tough quarter for Indian stocks as the economy slows down and inflation remains high, impacting corporate profits and foreign investment.
A recent informal survey of 22 strategists and fund managers conducted by Bloomberg suggests that the benchmark NSE Nifty 50 Index could drop by at least 5% during the three months leading up to March. Concerns about geopolitical issues, particularly during Donald Trump’s potential second term, are adding more challenges for the local stock market.
After experiencing significant gains last year, India’s nearly $5 trillion equity market now faces pressure due to foreign outflows, driven by worries over decreasing consumer spending. The total market value of companies listed in the MSCI India Index has decreased by $556 billion, as the index itself has fallen over 13% since reaching its peak in September.
Mohit Khanna, a fund manager at Purnartha Investment Advisers, which manages over $250 million, shared that “the Indian markets are dealing with a period of uncertainty.” He believes that recent local and global events could negatively affect local shares in the short term.
Further complicating the situation, new government data reveals that the economy is expected to grow by only 6.4% this fiscal year, significantly lower than the 8% average seen in the past three years. Vehicle sales dropped in December, and many consumer companies are reporting tough market conditions.
HSBC strategists recently downgraded Indian stocks to neutral, as investors are likely to reconsider their investments after the consensus forecast for FY25 earnings growth for the Nifty 50 was cut from 15% to just 5%.
While some survey participants predict negative returns for the Nifty 50 for the full year, about one-third believe it could rebound with a rise of 10% to 15% in 2025, primarily supported by ongoing investments from domestic investors.
Last quarter, the Nifty 50 decreased by 8.4%, but it still accomplished an annual gain of 8.8% for 2024, marking the ninth consecutive year of growth.
Vikas Gupta, the chief investment strategist at OmniScience Capital in Mumbai, noted, “If we look beyond the immediate challenges, we may be on the verge of an economic boom.” He predicts that local shares could climb over 10%, emphasizing that interest rate cuts will significantly influence the future direction of the Indian stock market.
Survey respondents also indicated that healthcare and information technology stocks, which benefit from the record-low rupee, are expected to perform well this year. However, no participants expressed optimism about the real estate sector, which has surged by over 110% in the past two years.
Dong Chen, chief Asia strategist at Pictet Wealth Management, mentioned that they are looking for opportunities to upgrade their positions once earnings growth turns positive, while maintaining a neutral approach towards India for now.
