Posted on February 14, 2025, by Niftynews
The Indian stock market has experienced a significant correction in recent times, with both the Sensex and Nifty indices witnessing sharp declines. As of February 14, 2025, the Indian stock market has corrected by around 12% from its all-time high, which has raised concerns among investors. Despite measures taken by the government, including tax relief and a rate cut by the Reserve Bank of India (RBI), the market has not been able to recover its momentum. While many point to global trade tensions and the U.S. tariff wars, there are deeper factors behind the decline.
What’s Causing the 12% Correction in Indian Stock Market?
1. FPI Outflows
One of the primary reasons for the Indian stock market decline is the continuous selling by Foreign Portfolio Investors (FPIs). Experts argue that the primary cause of this outflow is the attractive returns available in the U.S. market, driven by increasing 10-year Treasury yields and strong fiscal spending in the U.S. economy. As a result, investors have been shifting their focus from India to more lucrative markets like the U.S.
In addition, India’s economic slowdown and the cutting of earnings estimates have contributed to the decline in investor confidence. This combination of factors has led to a steady outflow of capital from the Indian market, adding more downward pressure on the stock indices.
2. Economic Slowdown in India
India has been facing an economic slowdown, which has further worsened investor sentiment. The country’s GDP growth has slowed down, and this has resulted in lower corporate earnings, especially for companies that rely heavily on domestic consumption. The declining industrial output and weaker consumer demand have added to the woes of the stock market.
Additionally, some market analysts believe that high valuations in the Indian stock market are discouraging foreign investors. With stock prices at lofty levels and lower-than-expected earnings growth, many FPIs are opting to exit the market rather than invest further. These high valuations have contributed to the growing FPI outflows, and in turn, caused the 12% correction.
3. Global Trade Tensions
Global trade tensions and the ongoing tariff war between the U.S. and China have also weighed heavily on investor confidence. These tensions have led to uncertainty in international markets, and India’s export-driven sectors are particularly vulnerable. With concerns about a global recession, many investors are becoming more cautious, leading to increased volatility in the Indian stock market.
Impact of FPI Outflows on the Indian Stock Market
According to reports, FPIs have been consistently pulling money out of India for seven consecutive trading sessions. As of February 2025, FPI outflows have reached approximately Rs 97,104 crore, which is approaching the Rs 1 lakh crore mark. This selling pressure is the largest driver behind the 12% market correction in India.
Elara Securities reports that FPI redemptions have been substantial in recent months. This has been part of a broader trend where redemptions from U.S.-based funds have slowed, but outflows from other regions, such as Ireland, Luxembourg, and Japan, have continued. The pressure from FPI outflows is significant, as these investors hold a large portion of the Indian stock market, contributing to the broader market declines.
Is China Gaining Market Share?
While India faces massive outflows, China is seeing a pickup in foreign investment. Over the past two weeks, China has witnessed an inflow of $573 million, marking the highest foreign investment since October 2024. Global fund managers appear to be gradually shifting their focus from India to China, which has added further pressure on Dalal Street.
China’s stock market is seeing an increasing number of investments as the country strengthens its economic growth. In contrast, India’s market continues to face a declining FPI presence, which is detrimental to overall market sentiment.
Will FPI Selling Stop?
It’s difficult to predict exactly when FPI selling in the Indian stock market will come to an end. Experts believe that FPI selling could persist unless there is a decline in the U.S. dollar and a decrease in U.S. bond yields. Additionally, a recovery in India’s economy and improved corporate earnings could lead to a reversal in sentiment. If these factors align, there could be a potential for FPIs to start buying back into the Indian market, thus reversing the current decline.
Conclusion: What’s Next for India Stock Market?
The Indian stock market is undoubtedly facing a tough time due to FPI outflows, a slowdown in economic growth, and global trade tensions. However, the situation is not all negative. A recovery in India’s economic fundamentals, coupled with an improvement in corporate earnings, could spark a rebound in the market. Investors should keep an eye on key indicators such as the U.S. dollar and bond yields, as these factors will play a significant role in shaping the future direction of Dalal Street.
Key Takeaways:
- The Indian stock market has corrected by 12% mainly due to sustained FPI outflows.
- The U.S. market’s attractive returns, India’s economic slowdown, and high stock valuations are driving the decline.
- Foreign investments are increasingly flowing into China, which is pressuring India’s stock market further.
- A potential market recovery is possible if India shows signs of economic improvement and stronger corporate earnings.
