FILE PHOTO: A man walks past the lit up Bombay Stock Exchange (BSE) building during Diwali, the Hindu festival of lights, in Mumbai, India, November 1, 2024. [Photo/Agencies]
Concerns over US trade protectionism and potential new levies from Washington, with President Donald Trump talking of reciprocal tariffs on key trading partners, have sparked an intense sell-off at India's stock markets in the past few weeks, sending a key index to the lowest level in nine months.
Foreign investor selling, due to a "quit emerging markets" trend amid Trump's "America First" policy, led to huge capital outflows, wiping out hundreds of billions of dollars in market capitalization.
On Friday, India's blue-chip NSE Nifty 50 stock index tumbled 1.86 percent to hit a fresh nine-month closing low, while the BSE Sensex plummeted 1.9 percent.
Karori Singh, former director and emeritus fellow of the South Asia Studies Centre at India's University of Rajasthan, said Trump, with his "America First" policy, has reemphasized US dollar domination and tariff measures on perceived adversaries as he seeks to bolster US manufacturing and energy exports.
"Tariffs, in general, create economic uncertainties, impacting not only countries where goods are produced but also consumer markets by disrupting global supply chains and trade flows," said Rocky Tung, director and head of policy research at the Financial Services Development Council, or FSDC, of Hong Kong.
Tariff measures "often lead to cost-push inflation, as immediate changes to production bases are difficult to achieve, and shifts in supply chains cannot happen overnight", he noted, adding that the disruption caused by tariff hikes affects businesses and consumers alike, increasing costs and creating challenges for both producers and end-users.
Analysts said besides the US tariff and global trade war concerns, other factors may have also contributed to the slide in Indian stocks.
Sanjay Agarwal, director of the Kolkata-based Sanjay Agarwal Broking, said India is considered a relatively expensive market compared to the rest of the world, and the ongoing selling by foreign institutional investors, or FIIs, could be a result of high stock valuations, apart from the weakening rupee and the somewhat slow Indian corporate earnings growth.
"The high valuations coupled with weak (corporate earnings) results in India have led to a lot of selling by the FIIs," he said. "Further, the US 10-year bond (yield) has increased by 0.75 percent in the last few months. This has also encouraged the FIIs to sell in India."
The fast capital may also be related to "hot money", which brings opportunities but also creates volatility in financial, real estate, and consumer markets, according to Tung from FSDC Hong Kong.
Solid foundation urged
"While foreign investments are crucial for emerging markets, these markets need a solid foundation to ensure sustainable growth," he said, adding that "long-term investors assess market readiness based on financial infrastructure, domestic investment size, liquidity, valuations, and other factors".
Some Indian media outlets have mentioned a "Buy China, Sell India" phenomenon, but an analyst disputed that theory, saying the Indian stock sell-off must be seen from the perspective of emerging markets in general.
Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services, has been quoted by the Financial Express newspaper as saying: "It won't be a fair assumption to say that the FIIs are selling India and favoring China. If you see the broad trend, FIIs have in general turned cautious about the entire emerging market basket, including India."
He added: "There is a lot of uncertainty about how the Trump tariff will pan out at the moment and investors are seeking clarity about it. We have seen some 'Buy China, Sell India' trade pan out in late last October. But for now, there is no clarity."
"Emerging markets can similarly attract foreign investment by simplifying regulations, improving transparency, and aligning regulatory frameworks with global standards," said Tung.
Arunava Das is a freelance journalist for China Daily.
Contact the writers at vivienxu@chinadailyapac.com.
