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Mar

India’s Stock Market Suffers Losses, China’s Gains

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A person wearing glasses and a suit AI-generated content may be incorrect.Indian stocks have been struggling since the release of the Hindenburg report on a major corporate entity in January 2024. Over the past year, the market has faced significant challenges, requiring urgent reforms. While international capital continues to flow into India, much of it is short-term, with long-term investors losing confidence. The continuous withdrawal of foreign portfolio investors (FPIs) has become a concerning trend.

Since October 2024, India's market capitalization has dropped by nearly $1 trillion, while China’s has risen by $2 trillion, indicating a shift in foreign institutional investor (FII) flows. Occasional rises in indices like BSE and NIFTY should not be mistaken for stability or economic strength.

The market saw a sharp correction from its September 2024 peak due to high valuations, slowing growth, weaker earnings, and global uncertainties, including fears of a trade war following U.S. President Donald Trump’s re-election. On February 28, 2025, the market plunged by 1.9 percent, wiping out 18 percent of investor wealth since September. The Sensex dropped 16 percent (12,256 points), and the Nifty tumbled 18 percent (3,991 points) from their record highs. Broader markets suffered steeper losses, with the BSE MidCap and SmallCap indices declining over 20 percent. The downturn continued after the Lok Sabha election results in June.

The Nifty 50 dropped 1.2 percent to below 22,300, marking its third consecutive monthly decline due to concerns over a global trade war and persistent foreign fund outflows. The situation resembles the June 2015–2016 crash, when the Sensex lost over 26 percent between April 2015 and February 2016.

 

Column at a Glance

Since the Hindenburg report's release in January 2024, Indian stocks have faced significant challenges, leading to a nearly $1 trillion drop in market capitalization. Foreign portfolio investors (FPIs) have withdrawn approximately Rs 2.13 lakh crore, reflecting a loss of confidence amid high valuations, slowing growth, and global uncertainties, including fears of a trade war following Donald Trump's re-election.

Monday Matters

By Shivaji Sarkar

The Nifty 50 index has seen a decline, marking its third consecutive monthly drop. Domestic economic factors, such as high inflation and stagnant incomes, have further strained the market. Despite these challenges, some experts see potential for recovery through structural reforms and government initiatives aimed at boosting domestic demand. The International Monetary Fund (IMF) supports these reforms, while India strengthens trade ties with the EU and other regions. However, restoring investor confidence will require addressing economic vulnerabilities and improving corporate earnings.

 

FPIs have continued their selling spree, withdrawing Rs 2.13 lakh crore since October 2024, further straining the struggling market. Global instability, driven by protectionist policies, has added to India’s troubles. President Trump’s aggressive economic stance, including 25 percent tariffs on European automobiles and new levies on Mexico and Canada, triggered a widespread sell-off in global markets, including India.

Domestic factors have also worsened market conditions. Core sectors have struggled, manufacturing has been below optimal levels, and even agriculture has faced production setbacks, further denting investor confidence.

Regulatory concerns persist. The international investment community expects regulators like SEBI to function objectively. Investors were unsettled by the role of former SEBI chief Madhabi Buch. However, the appointment of new SEBI Chairman Tuhin Kant Pandey, with his finance and administrative background, has raised expectations for greater transparency and governance.

India’s economic growth has slowed significantly this fiscal year. High inflation and stagnant incomes have constrained household spending, leading to weaker corporate earnings. Since October 2024, FPIs have withdrawn nearly $25 billion, turning India’s once top-performing stock index into one of the region’s worst. The rupee has hit record lows, making India's expensive stock market even less attractive.

A broader market recovery remains elusive unless corporate earnings improve significantly or valuations undergo meaningful corrections. The government may have overestimated stock market performance in its budget projections. For the 2025–26 fiscal year, it expects securities transaction tax (STT) collections to reach Rs 78,000 crore, a 40 percent increase over revised estimates and a 63 percent jump from Rs 33,778 crore collected in 2023–24.

Despite challenges, some experts argue that the Indian stock market has deepened significantly. They believe indices like Nifty and Sensex no longer fully represent the broader market. While large-cap valuations have moderated, mid- and small-cap valuations remain high. Slowing earnings growth has contributed to current volatility.

The scenario is not entirely bleak. The International Monetary Fund (IMF) advocates for structural reforms to ensure sustained growth in India. Additionally, India is strengthening economic ties with the European Union (EU), as shown by ongoing discussions with EU President Ursula von der Leyen on defense, security strategy, and free trade. Trade between India and the EU has reached $135 billion, surpassing India's $120 billion trade with the U.S. Indian companies are making strategic global acquisitions, particularly in steel and other industries. Despite market turbulence, India’s GDP growth rate remains resilient at around 6.4 percent in 2025.

India is also expanding its trade footprint in Southeast Asia, Australia, and other emerging markets. Government efforts to stimulate domestic demand through wage revisions could support economic recovery. Planned salary revisions for 48.67 lakh central government employees, 67.95 lakh pensioners, and 20 million state and local government employees are expected to spur consumption.

Regulatory reforms have gained traction. In 2024, SEBI introduced measures to cool down the derivatives segment, enhance transparency in small and mid-sized enterprise (SME) listings, and deepen the fund management ecosystem. A key development was SEBI’s implementation of a same-day settlement cycle, a pioneering move in global markets.

Despite these efforts, corporate earnings remain a concern. Nifty 50 companies posted just 5 percent earnings growth in the last quarter, marking the third consecutive quarter of single-digit gains after two years of strong double-digit expansion. Corporate earnings in 2025 may improve but are unlikely to attract significant international investment. Inflationary pressures and rising unemployment continue to pose risks, particularly for export-driven sectors such as IT, pharmaceuticals, and specialty chemicals.

While the Indian stock market faces significant headwinds, there are pockets of resilience. Structural reforms, policy shifts, and government initiatives to boost domestic demand could help stabilize the market. However, restoring investor confidence—both domestic and international—will require sustained efforts to address economic vulnerabilities, improve corporate earnings, and implement transparent regulatory practices. Only then can India position itself as an attractive long-term investment destination.

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