Indian families are investing more of their savings into stocks through demat accounts and mutual funds. This has made it easier for foreign investors to sell some of their Indian stocks. As we head into an exciting few weeks with important events like the Q3 earnings season, Donald Trump’s inauguration on January 20, the Fed meeting on January 31, and the Union Budget on February 1, foreign investors have sold nearly $2 billion worth of Indian stocks in just the first week of 2025.
While many local investors are buying stocks during dips, foreign investors seem less interested right now because earnings growth is slowing down and stock prices are still high. A major brokerage firm, HSBC, has even changed its view on India, saying it’s now a “neutral” investment, and has lowered its target for the Sensex index to 85,990 due to expected lower profits and high stock prices.
Here are six reasons why foreign investors are pulling back from Indian stocks:
1. Earnings Slowdown
After four years of strong profit growth, Indian companies are seeing earnings predictions decline in the last two quarters. Many experts believe that this trend will continue and predict low earnings growth for the full year 2025.
2. Weak Economic Growth
The Indian government’s estimate shows that GDP growth for FY25 is expected to drop to 6.4% from 8.2% in FY24. This slowdown can affect business and consumer confidence, job growth, spending, and overall financial health in the country.
3. Weak Rupee
As the dollar gets stronger, the Indian rupee has fallen to a record low of 85.93. A weak rupee increases risks for foreign investors and can lead to more selling of Indian stocks.
4. Rising Bond Yields
U.S. Treasury yields are reaching their highest levels in several months, which implies the U.S. Federal Reserve might keep interest rates high. This situation can cause the dollar to strengthen even more, pushing foreign investors to shift their funds away from India.
5. Trade Policy Concerns
The future economic climate in the U.S. will be affected by Donald Trump’s trade policies once he takes office. Whether these policies help or hurt trade with emerging markets like India could change investment flows significantly.
6. Shifts to U.S. Markets
Some experts think the U.S. stock market is attracting a lot of global money, causing money to flow out of emerging markets like India. This trend could weaken local currencies and reduce investments in Indian stocks.
(Disclaimer: The views expressed here are those of the experts and do not represent the opinion of NiftyStat.)
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