Until recently, India was considered one of the main bets of global investors on long-term growth.
Now the mood has changed dramatically.
In an August survey by Bank of America, India becameasia's least preferred stock marketreplacing Indonesia in this position. Clean32% of managershave underweight on Indian shares.
And the most interesting thing here is that the problem is not only in the fall of the market.
Why investors are changing their minds
The main claim against India isprice.
Indian stocks have long traded at a high premium to other emerging markets due to expectations of rapid economic growth.
But when growth slows, appreciation becomes a problem.
The investor asks a simple question:
why pay dearly for India if the rate of growth no longer justifies this premium?
To this is added another problem: the Indian market is practically not a direct beneficiary of the global AI boom. It was the lack of an understandable AI exposition that the managers called one of the main risks.
Rupee adds pressure
The problem is even more serious because of the currency.
On August 19, the rupee dropped to about95.75 per dollarand RBI had to actively support it through the foreign exchange market. Pressure is created by high oil prices and demand for the dollar.
This is particularly sensitive for India.
The country is one of the largest importers of oil in the world.
Expensive oil → is more demand for dollars, → pressure on the rupee → is higher than the cost of imports.
It turns out to be a vicious circle.
But there is an important paradox
India does not look like an economic disaster.
On the contrary, corporate profits are improving, and global investors have already returned more$4 billioninto Indian equities in the current quarter.
The problem is different.
The market may be good, but the price for it may be too high.
This is what investors are now trying to overestimate.
What this means for the market
Nifty 50 lost about8% YTDand Indian stocks remain among the worst major markets in Asia.
If the rupee continues to weaken and oil remains expensive, the pressure may persist.
But if the RBI stabilizes the currency and corporate profits continue to rise, the current correction could create more attractive levels for long-term investors.
Main conclusion
Indian history is not confronted with the disappearance of economic potential, but with thereassessment of expectations.
High multipliers no longer seem unquestionably justified.
The AI boom is passing by a significant part of the Indian market.
The rupee is under pressure.
And expensive oil creates additional risks for the economy.
Therefore, the main question is no longer,"is India good".
And that includes:
“are Indian stocks cheap enough to offset the rising risks?”
