Indian Markets Reel from Historic Sell-Off as Global Funds Shift Focus to China

The Indian stock market experienced significant sell-offs this week, with global funds recording the largest net sell-off since at least January 1, 1999. On October 3, global investors pulled out $1.85 billion from Indian equities, setting a new record high in terms of net sell-offs. Meanwhile, India’s bond market saw an outflow of $1.017 billion on the same day.

Following a holiday break, Indian stock markets plunged on Thursday as concerns about an economic slowdown alongside a rally in Chinese stocks led to increased sell-offs by global funds. This downturn affected market sentiment, sending the NSE Nifty 50 Index down by 2.1%, marking its steepest fall since August 5. The index underperformed other major Asian markets, even surpassing the losses observed in Hong Kong-listed Chinese stocks.

The local stock market had earlier shown a robust recovery, making India's $5 trillion market one of the most expensive worldwide. However, this momentum has recently tapered off amid signs of weak economic data and potential reallocations by global investors influenced by the rally in Chinese markets.

Saurabh Rungta, Chief Investment Officer at Avendus Wealth Management Pvt, noted, "Our internal models suggest the market is now in a relatively expensive territory. The market could correct by 10%-15% at any moment, and it appears to be taking a breather now."

On Monday alone, foreign investors withdrew more than $750 million from the local stock market, the largest outflow since early June. The sharp surge in Chinese equities has raised concerns that global fund managers, who invested nearly $12 billion in the last quarter, might be capitalizing on Indian stocks to reallocate funds to China.