India's growth story faces scrutiny as markets slide ahead of Budget 2025

With just a few days to go before the budget, there is a growing debate on India's growth story. Indian stocks were a hot bet among international fund managers until a few months ago when benchmark indices repeatedly hit record highs.

However, that mood has dwindled since late September. At one point, Indian stocks were considered a serious contender to China in the emerging market indexes.

Such ambitions are now dwindling as the market is shaken by a slowing economy and foreign outflow. The rupee's value has dropped to new lows versus the dollar, and economic growth has slowed to a four-year low.

Since the end of September, foreign funds have sold shares worth over 19 billion dollars in the nifty benchmark, which is poised for its worst monthly losing streak since 2001.

Bloomberg Economics predicts that India's GDP growth in the March quarter might be cut by as much as 50 basis points due to the market selloff.

As a result, household spending could be further dampened by the wealth depreciation that follows.This means the government is under even more pressure to turn things around before presenting the budget on February 1.

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Indian stocks rage fading?

Chetan Seth, an Asian Pacific equity strategist at Nomura Holdings, said, "The unbridled enthusiasm in India has faded a bit."He added, "There are clearly more investors now who are asking difficult questions, and there is a healthy debate as opposed to no debate earlier on the India story."

The stock market and corporate profits in India were both bolstered by the government's strong emphasis on infrastructure development and the consumer boom post-pandemic.

As a result, the country was a favourite among global equities investors.The total value of firms included in the MSCI India index reached a record high, increasing by about 2 trillion dollars in just over two years.

Just then, the growth story began to show signs of cracks. High inflation dampened demand in metropolitan areas in addition to discouraging the central bank from lowering rates.

Investors started to doubt if Indian stocks were worth the premium they were trading at as corporate earnings started to decline.

(With inputs from the agencies)