Indian stocks heading towards a correction?

As the post-pandemic economic boom in India shows signs of losing pace, foreign investors are turning their backs on the country's stock market, dumping a record amount of shares.

The Nifty benchmark stock index was pushed towards a so-called technical correction in October as global funds sold off the country's stocks worth $10 billion.

Previously, domestic investors were able to offset any selling by foreign funds. However, this time around, domestic investors, too, have turned cautious.

Add WION as a Preferred Source

The past few years have seen India emerge as a preferred investment destination. This was broadly driven by breakneck economic growth, surging corporate profits and a broader shift away from China.

Is India's vaunted growth story waning?

However, now, stock values have risen to among the world's most expensive, economic and profit growth is slowing. In addition, Chinese stocks are making a return after a stimulus blitz that began in late September.

So, some of the shine in Indian stocks is beginning to wear off.
That comes even as the IMF once again gave a thumbs up to India's economic growth story, with the nation expected to be the fastest-growing major economy in the world.

However, now it is clearly about the much-touted Indian consumption story fraying in the rapidly expanding major economy in the world.
Consumers in Indian cities are reducing their spending - widely known as urban spending.

Firms have warned of a fall in demand from the urban middle class owing to inflation and poor employment prospects.

While a favourable monsoon season increased agricultural revenues, helping consumers in rural areas spend more, that is not enough to offset the decline in demand among roughly 500 million city dwellers.

As foreign outflows picked up pace, the benchmark Nifty index lost 6.2 per cent in October, marking its worst monthly performance since the steep sell-off after the COVID-19 lockdowns in March 2020.

Still, the Nifty index is up more than 10 per cent this year, and on track for an unprecedented ninth straight year of gains.

Share purchases worth more than 50 billion dollars by the nation's domestic institutions have helped prevent a deeper market sell-off.

But with the sell-off in broader markets on the US election risk, the gauge fell over one per cent on Monday, marking the biggest fall in a month.
Citigroup predicts that sustained withdrawals of foreign investors might continue to hurt stock performance in the near term.