Stock Markets: Japanese brokerage firm Nomura Holdings has predicted continued pressure on the Indian stock market. The firm says that foreign institutional investors (FIIs) are turning to China, which may lead to further selling in the Indian markets. According to Nomura, the valuation of the Indian markets remains high, which is the biggest concern at the moment. Currently, the PE ratio of the MSCI India Index is trading at 21x, while the average for 2015 and 2022 has been 19.6x and 21.5x respectively.
Nomura says this PE level could have been attractive for new investments, but the Indian market could see further decline due to growing opportunities in China and domestic challenges.
Recently, new technologies like Artificial Intelligence (AI), robotics and Electric Vehicles (EVs) have gained momentum in China. Its DeepSeek chatbot has created a stir all over the world. Due to this, China's stock markets are no longer being underestimated and investors' inclination towards it has increased.
This can have an impact on the Indian markets. The brokerage said that due to China being an alternative, foreign investors can withdraw money from the Indian markets. This can put further pressure on the Indian equity market due to India's slowing economy, weak corporate earnings and US tariff risk. The weakness of the rupee and heavy selling by foreign investors can bring further decline in the market.
FII selling may continue
Nomura says that foreign investors' share in the Indian market has fallen to 16%, the lowest in the last decade. But FIIs still hold $782 billion (about ₹65 lakh crore) in Indian stocks, which is more than the pre-Covid level. If the positive environment in China continues, FII selling may continue further.
Nomura says that so far the investment coming from retail investors in the stock market through mutual funds has remained strong. But the brokerage firm fears that if domestic investors also start withdrawing money from mutual funds, it could lead to further decline in the market.
Trust in India for the long term
However, Nomura said it still remains positive on the Indian stock market from a long-term perspective. The brokerage believes that the current slowdown is a cyclical phase and not a major structural downturn.
The brokerage said that the number of stocks trading below 200 DMA in the NSE 500 and Nifty 50 index is at a record low. Historically, this situation is followed by a consolidation in the market in the 3, 6 and 12 months.
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