India’s stock market has been on a record-breaking 11-month rally, but that momentum is now at risk as company profits begin to cool. Experts predict that companies in the NSE Nifty 50 Index will report little or no profit growth for the quarter that ended in September. Analysts say this could be the slowest earnings growth in over four years, excluding the oil and gas sector.
After reaching impressive highs, the stock market has seen a drop of nearly 3% in October, bringing the total gains for the year to just over 15%. Many believe the market may have peaked in September as global investors shift their focus toward China. The slowdown in profits is being driven by weaker consumer spending and rising commodity prices.
Rajat Agarwal, an equity strategist, mentioned that India’s economic momentum is slowing down, which could put pressure on the stock market given its high valuations. Other analysts agree, pointing out that India’s stock market may struggle due to expensive valuations compared to other emerging markets like China.
Recent economic data backs up these concerns. In September, India’s GST collections grew at the slowest rate in over three years, passenger vehicle sales dropped nearly 19% from a year ago, and power demand also fell. Major companies like Reliance Industries and Tata Consultancy Services have already reported lower-than-expected earnings this quarter.
Foreign investors have pulled over $7 billion out of Indian stocks in October, the biggest outflow since March 2020. Much of this money is being redirected to China, which has seen a boost in its stock market after recent stimulus measures.
Indian stocks are now trading at high valuations, with the MSCI India Index priced at 24 times its 12-month forward earnings, compared to a five-year average of 21. This is more than double the multiple of the MSCI China Index. Analysts believe that sectors like oil, steel, cement, and chemicals could be among the worst performers for the September quarter.
While these challenges may slow India’s stock market, it has managed to bounce back from tough times in the past. Local investors could step in to buy during the dip, and India’s growing presence in global indexes may attract further investments. However, for now, analysts expect to see more companies missing their earnings targets, especially in sectors like consumer goods, materials, and financials.
