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For Gerald Gan, chief investment officer at the Singapore-based firm, it was an easy call. “There isn’t much going on for a good India story,” Gan said. “It is more the growth story that is withering away for India.” Gan’s views echo the growing skepticism toward Indian equities among a section of global money managers, who cite the absence of an artificial-intelligence investment theme and lukewarm corporate earnings as reasons to either cut their allocations or completely exit the $5.1 trillion market. As a result, foreign portfolio ownership of companies listed on the National Stock Exchange of India Ltd. has tumbled to a 17-year low. Whereas India’s economic growth rate — one of the highest globally — and Prime Minister Narendra Modi’s infrastructure build-out were the key attractions just a few years ago, that promise pales beside the returns generated from AI plays in South Korea and Taiwan. Indian equities trade at about 17.6 times forward earnings — slightly below their historic average — but still remain significantly more expensive than their emerging market peers. The NSE Nifty 50 Index still commands a 77% valuation premium to MSCI Inc.’s emerging-market benchmark, prompting foreign funds to pull about net $25 billion this year and deploy it elsewhere. That’s left the Nifty 50 Index languishing near its mid-2024 level. It is on track to snap a decade-long streak of annual gains — a run bettered among major global equity markets only by Japan’s Nikkei 225 in the 1980s. About 30% of Global CIO Office’s clients, which include family offices and wealth managers, have exited India entirely, Dugan said. Still, local institutions have provided a floor for the market, with net stock purchases of about $60 billion this year, according to BSE Ltd. data. The buying has helped small-cap stocks in the country emerge as a bright spot, buoyed by companies benefiting from India’s data center build-out. Morgan Stanley says India is in the midst of a multi-quarter growth upcycle, and given the supportive equity valuations, market performance should improve in the months ahead. The brokerage sees the BSE Sensex Index rising 19% to 89,000 by June next year in its base-case scenario, and reaching 100,000 in a bull case. Yet investors are becoming more discerning. NSE — the poster child of India’s financialization boom — was forced to downsize its long-awaited initial public offering this week after investors pushed back against valuations. ‘Real Issue’ After more than 12 years in power, Modi has struggled to translate India’s status as the world’s fastest-growing major economy into an attractive market for foreigners. The old structural bull case of a large consumer and services market is now being challenged by a lack of meaningful AI play and the high dependence on oil imports. More than ever, India is in need of foreign capital, especially more durable foreign direct investments that can fuel Modi’s manufacturing ambitions and provide a buffer against fickle portfolio flows. Fund managers now say the leader needs to do more to lure back foreign investors. “Modi came in. He did some positive things that were done very well and within a reasonable timeframe, such as GST harmonization, the real estate reform, the bankruptcy court, but that hasn’t solved the real issue,” said Sat Duhra, a portfolio manager at Janus Henderson Investors. “The issue is jobs, it’s trying to build manufacturing, trying to gain the FDI.” “The result has been pressure on the current account balance and a weaker rupee. Currency depreciation can compound foreign investors’ concerns as it erodes dollar returns, tightens local financial conditions at the margin, and raises questions about the durability of corporate margins,” said Carlos Casanova, senior economist for Asia at Union Bancaire Privee. Complicating matters is India’s shrinking clout in emerging-market indexes, driven by its poor performance versus AI-focused North Asian markets. The South Asian nation now accounts for about 11% of the MSCI Emerging Markets Index, down from 16% a year ago, according to data compiled by Bloomberg. “India’s relative underperformance reduces its index weight, which then gives benchmark-conscious managers less reason to own it, adding to the selling pressure,” Dugan said. “But it is also an indicator of the times. The dominant theme in emerging markets at the moment is tech, and that is where the money is going.” (What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price (What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price
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