Experts predict the shift to be temporary: Project a revival for the Indian stock market by the end of 2025
Foreign investors in India have been withdrawing from the nation’s stock market at an all-time high rate. FIIs have withdrawn close to US$29 billion from Indian equities since October 2024, which is the largest six-month outflow on record.
The Nifty 50 index has declined 13% from its record high in September, losing US$1 trillion in market cap. India’s stock market is falling while China’s Hang Seng Index has risen by 36% from late September, appealing to investors seeking huge returns.
FIIs Shift to China Stock Market
China has actively been drawing in investors through the incentivizing economy policies and growing technological developments. The establishment of artificial intelligence ventures like DeepSeek has placed China at the forefront of innovation. India, on the other hand, has struggled with declining business profits. Nifty 50 reported a small 5% revenue growth for the quarter of December 2024. This was the third straight quarter for a single-digit rise following two straight years of double-digit gains.
Another reason is valuation. Despite the recent sell-off, India’s BSE Sensex is still expensive, trading at 20 times its forecasted 12-month profit. China’s Hang Seng Index, however, is only 7 times priced, making it a more appealing investment vehicle.
Another reason for the FII shift is higher US Treasury yields and a stronger US dollar. Thus, attracting investors to move to more stable markets.
Is This the End of Foreign Investment in India
India is still a good bet as an investment destination, even after this huge outflow. It has one of the world’s fastest-growing major economies, driven by strong domestic consumption and a growing middle class. Initiatives like “Make in India” from the government are still drawing foreign direct investment and boosting the manufacturing industry.
India’s economy is also diversely well-developed, with great performances in technology, pharma, and services. While China is highly dependent on manufacturing and exports, India’s wider economic base ensures long-term stability. Though investors have lowered their exposure lately, experts say that the trend could be reversed as Indian market stabilizes.
Experts Comment on India’s Market Potential
Market experts are optimistic about India’s long-term future.
Anwiti Bahuguna, Northern Trust Asset Management’s Chief Investment Officer, said India’s market was “priced for perfection,” and the recent earning deceleration prompted the sell-off. However, the correction might provide improved entry points for investors seeking long-term growth.
Ryan Dimas, a Portfolio Specialist at William Blair’s Global Equity Strategies, is of the opinion that “India has one of the best economic backdrops of the major markets, with plenty of economic drivers as well as stock market support.” Most investors who have shifted money to China continue to hold positions in India, seeing the long-term prospects of the country.
The Future Outlook for India’s Stock Market
Though China has currently gained favour with foreign investors, this is not a lasting setback for India. With continued structural reforms, a fast-growing economy, and a resilient domestic market, India is still a good bet for long-run investment.
Morgan Stanley’s Jitania Kandhari thinks the break for foreign investors to turn around to Indian shares will probably come in the latter half of 2025. It means investors may be turning away for the moment but the stock market in India could pick up pace again soon.
The present capital flight appears scary, but it is also an opportunity for investors seeking undervalued Indian stocks. As the economy turns the corner and earnings get back into shape, India’s stock market can rebound much better. Thus, this short-term shift would prove only to be a temporary adjustment rather than a permanent loss.
