The stronger impact on the domestic stock market was partly due to our playing on a weak wicket. In the weeks prior, the domestic market had been underperforming relative to other EMs
The underperformance intensified as investors began shifting funds to Asian counterparts like China, trading at significantly lower valuations—10x to 25x forward P/E in dollar terms, compared to India’s premium valuation.
India was trading at a premium valuation for a long time due to its economic supremacy. However, recent corporate earnings growth has stabilised with a negative slope, indicating that India will have to bear a correction in valuation
Rising tensions in West Asia have had a more significant influence on the Indian stock market than the worldwide clampdown. Since September 26, the Nifty 50 has declined by 4.5%, while major global indices have fallen by only 1.25 percent, with the exception of China, which has increased by more than 10%.
The world is managing better, but given India’s reliance on crude oil imports, the rise in oil prices has a direct impact on the country’s trade deficit. With oil prices increasing by 10%, the resulting volatility affects both the currency and stock markets.
We maintain that India will likely underperform other EMs in the short term, with midcap stocks expected to lag behind domestic large caps. This shift in our outlook was already in motion before the recent Israel-Iran conflict, which has only intensified the situation.