Key points
- India shares are down more than 7 per cent this year
- Foreign investors have sold $25.1 billion of Indian equities
- Cheaper Asian markets are attracting international investment
ISLAMABAD: India’s stock market is facing another outlook cut as foreign investors shift to rival Asian markets, with analysts citing weaker valuations elsewhere, limited exposure to the artificial intelligence boom, a falling rupee and high oil prices.
A Reuters poll of 28 equity analysts showed the Nifty 50 index is now expected to reach 25,556 by the end of 2026, about 5 per cent above Tuesday’s close of 24,334.55.
The latest forecast marks the third consecutive quarterly cut in the market outlook and is the lowest median forecast for the end of 2026 since the poll began last year.
The index is forecast to rise to 26,300 by mid-2027 and 27,450 by the end of next year. The benchmark BSE Sensex is expected to reach 81,608 by the end of 2026, 85,700 by mid-2027 and 89,000 by the end of 2027.
The benchmark shares have fallen more than 7 per cent this year, putting the market on course for its weakest annual performance in more than a decade.
The decline contrasts with solid gains in several other Asian markets, including Japan, South Korea and Taiwan.
Foreign funds in India turn to rivals
Overseas investors have sold roughly 2.4 trillion rupees ($25.1 billion) of Indian shares this year, according to the poll analysis.
Investors have increasingly found cheaper opportunities in markets such as Thailand, Malaysia and the Philippines, as well as stronger exposure to artificial intelligence-related technology stocks in South Korea and Taiwan.
The shift has come despite India’s strong economic performance.
The country’s economy grew by just under 8 per cent in the previous fiscal year, and companies in the Nifty 50 reported an 18 per cent increase in profits in the June quarter, their fastest growth in 10 quarters.
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The contrast between economic growth and stock-market performance has nevertheless raised concerns over valuations and the ability of Indian equities to attract international capital.
“When the entire world is doing well, and we are not, that tells me rosy economic data that looks good on paper is actually not that rosy,” said Anil Manghnani, director at Modern Shares and Stockbrokers.
He also pointed to the artificial intelligence investment boom, saying India has lagged because its market has comparatively little exposure to the sector.
Rupee, oil weigh on India
The Indian rupee has fallen about 6 per cent against the US dollar this year, making Indian assets less attractive to overseas investors because currency depreciation reduces dollar-denominated returns.
High crude oil prices have added another risk. Oil prices have remained close to $90 a barrel, raising concerns for India because of its heavy reliance on imported energy.
The combination of a weaker currency and expensive oil can increase import costs, pressure inflation and further discourage foreign investors.
“Oil prices and the rupee continue to be immediate risks for Indian markets,” said TS Harihar, chief executive and founder of HRBV Client Solutions.
The pressure on Indian equities has also continued into the latest trading sessions.
Shares fell on Wednesday as losses in information technology stocks and Reliance Industries outweighed gains in major financial stocks and support from lower oil prices.
Correction risk limited
Despite the weaker outlook, most analysts do not expect a sharp correction in the immediate future.
Twenty of 27 analysts who answered a separate poll question said a correction of 10 per cent or more was unlikely over the next three months. Seven expected such a decline.
Some analysts remain optimistic that improving corporate earnings could eventually drive the market back towards record levels.
