Indian Markets Under Pressure as FIIs Shift to China

Indian markets are likely to face continued pressure as Foreign Institutional Investors (FIIs) move their investments to China, according to Nomura. The positive narrative on India is being tested due to a slowing economy and weak corporate earnings. Elevated valuations in the domestic markets are also a concern. The MSCI India index trades at a PE ratio of 21x, compared to historical averages of 19.6x and 21.5x.

Investors are flocking to Chinese equities, driven by technological innovations and attractive valuations. This shift could lead to further selling pressure on Indian equities. The advance-to-decline ratio in the broader market is close to record lows, indicating oversold conditions.

Nomura notes that while foreign ownership in Indian stocks is at a decade low of around 16%, it still appears elevated compared to pre-pandemic levels. This suggests scope for more net-selling ahead. Domestic equity flows from retail investors into mutual funds have been resilient, but concerns remain about potential outflows.

Overall, the Indian market may see further selling pressure as FIIs continue to favor Chinese equities, driven by better growth prospects and attractive valuations