Indian Stocks Endure Longest Losing Streak in Over Two Decades

Indian equities are experiencing their most prolonged monthly losing streak in over two decades, a downturn fueled by weak corporate earnings, significant foreign investor outflows, and broader economic uncertainties. This sustained decline follows a period of record highs just four months prior, marking a significant shift in market sentiment.

Indian Stocks Face Historic Decline

Indian stocks are currently enduring a four-month losing streak, marking their longest such run in 23 years. Both the Nifty 50 and Sensex indices have seen approximately a 3% decline in January alone, contributing to a cumulative drop of 12.6% and 11.7% respectively from their peak on September 27, 2024. This downturn has pushed them below levels seen even before Prime Minister Narendra Modi's re-election victory, which had initially spurred a rally.

Key Takeaways

• Weak Earnings: Approximately 60% of Nifty 50 companies reported earnings that either met or missed market expectations, the worst performance since March 2020. This was exacerbated by reduced government spending post-elections, unusual rainfall, and rising inflation.
• Foreign Investor Exodus: Foreign portfolio investors (FPIs) have withdrawn a substantial $8.3 billion from Indian equities in January, following a record $11.18 billion outflow in October of the previous year. Factors contributing to this include a stronger dollar, elevated U.S. yields, tariff concerns, sluggish domestic economic growth, and high stock valuations.
• Underperformance Against Global Peers: While Indian benchmarks gained about 8.5% in 2024, this was the lowest among major global peers. Their January slide has further widened this gap.
• Small-Cap and Mid-Cap Plunge: Small-cap and mid-cap indices have seen significant declines of approximately 15% and 10% respectively in January, marking their worst monthly performance since March 2020. Small-caps are down nearly 19% from their December 2024 highs, and mid-caps have fallen 15.5% from their all-time highs, both heading towards bear market territory.

Factors Fueling the Downturn

The slide began in October with the release of quarterly earnings reports. The subsequent months saw continued gloom, compounded by a resurgent dollar and the potential threat of U.S. tariffs following Donald Trump's U.S. presidential election victory. The Nifty 50's returns in U.S. dollar terms fell 4.25% in January, a stark contrast to the 7% jump in 2024 and 21% increase in 2023.

Small and Mid-Cap Vulnerability

While large-cap stocks hit records in 2020, the small and mid-cap segments are now experiencing a significant correction. Many small and mid-cap stocks had seen substantial gains (2x to 6x) over the past two years. However, analysts suggest that current valuations are difficult to justify given the challenging macroeconomic environment, making these segments particularly vulnerable to the current market downturn.

Sources

• Indian stocks set for longest monthly losing streak in over 23 years, Reuters.