Why global investors are turning away from Indian shares
What's the story
India's once-booming stock market is losing its sheen among global investors. Reed Capital Partners, a multi-family office, recently decided to completely divest from its Indian portfolio. The firm's Chief Investment Officer Gerald Gan said that "there isn't much going on for a good India story." This sentiment reflects the growing skepticism toward Indian equities among some global money managers.
Apprehensions
Foreign ownership at a 17-year low
Gan's concerns stem from the lack of an artificial intelligence (AI) investment theme and tepid corporate earnings in India.
These factors have prompted some global money managers to either reduce their allocations or exit the $5.1 trillion market altogether.
Consequently, foreign portfolio ownership of companies listed on India's National Stock Exchange has plummeted to a 17-year low.
Shift
Least favored market in Asia
India's stock market, once a top pick for global investors, is now the least-favored in Asia.
This was revealed by a recent Bank of America investor survey.
Funds managed by Janus Henderson Investors and Vantage Point Asset Management have also reduced their exposure to Indian equities to zero over the past year or so.
Prospects
AI investments driving interest in other countries
India's high economic growth rate and Prime Minister Narendra Modi's infrastructure development plans were major attractions a few years ago.
However, these factors now pale in comparison to the returns from AI investments in South Korea and Taiwan.
Despite trading at slightly below their historic average, Indian equities remain more expensive than their emerging market counterparts, prompting foreign funds to withdraw about $25 billion this year.
Market stability
Local institutions stepping in to support market
Despite the foreign exit, local institutions have been supporting the market with net stock purchases of about $60 billion this year.
This buying has helped small-cap stocks in India shine, thanks to companies benefiting from India's data center development.
Morgan Stanley predicts a multi-quarter growth upcycle for India and expects improved market performance in the coming months.
Market hurdles
IPO cut and PM Modi's struggles
The NSE had to cut valuation of its long-awaited initial public offering after investors rejected the figures.
After over a decade in power, PM Modi has struggled to make India an attractive market for foreign investors.
The country's vulnerability to oil price fluctuations was highlighted by the US-Iran war outbreak, which led to a stock market decline and record low for the rupee.