What happened
India's stock market is experiencing a downturn despite the country's economy growing at a rate of over 7%. The benchmark Sensex and Nifty indices have posted losses for eight straight weeks, the longest losing streak in 25 years. Indian investors have seen their wealth erode by about 15% this year, while foreign investors have withdrawn a significant amount of money from the market.
There are several reasons contributing to the decline of India's stock market. One major factor is the persistent energy shocks due to the Middle East conflict, which has led to high crude oil prices. India imports over 90% of its crude oil requirements, making it vulnerable to price fluctuations. Rising global interest rates are also affecting the market, as foreign investors tend to leave riskier emerging market assets like Indian equities for safer investments like US bonds.
The falling value of the rupee is another concern, as it has compounded the problem of muted returns for foreign investors. Additionally, Indian stocks are still relatively expensive compared to their earnings, especially when compared to other emerging markets. The lack of investment in emerging areas like artificial intelligence is also a major missing piece of India's growth story.
Despite the market correction, domestic savings into mutual funds have not reduced, and Indian savers continue to invest in the market. However, the real test will be whether this resilience survives a deeper correction in the future.
