Indian Stock Market Crashes as Foreign Investors Sell Stakes
Foreign Investors Flee Indian Markets—Is Modi Magic Over?
Indian stock market fares poorly
The euphoria associated with Indian Prime Minister Narendra Modi’s government seems to have waned. The BSE (Bombay Stock Exchange) Sensex has yielded one of the lowest returns of any BRIC (Brazil, Russia, India and China) stock market index.
As you can see in the table above, the YTD (year-to-date) return for the BSE Sensex is -0.9%. In comparison, China’s Shanghai Composite Index yielded a 35.5% YTD return.
Meanwhile, the iShares MSCI India ETF (INDA) had a YTD return of -0.72%. In contrast, the iShares China Large-Cap ETF (FXI) returned 19.3% YTD and the iShares MSCI Russia Capped ETF (ERUS) returned 42.74% YTD.
The YTD performance of Indian companies listed as ADRs (American depository receipts) has been mixed. While HDFC Bank (HDB) posted a YTD return of 13.2%, ICICI Bank (IBN) posted a YTD return of -8.74% as of May 14, 2015. Healthcare company Dr. Reddy’s Laboratories (RDY) returned 8.7% YTD.
Foreign institutional investors sell stakes in Indian capital markets
As the above chart shows, FPIs (foreign portfolio investors) have conducted more sales than purchases in the Indian equity and debt markets since the start of 2015. Net sales by foreign portfolio investors in the Indian capital markets amounted to a whopping ~$2.4 billion as of May 19, 2015.
Are the good times over?
When Modi came to power as the prime minister of India in May 2014, oil prices were falling. Certainly, there was general euphoria over Modi’s new government and its promises about better governance and an investor-friendly business environment. Nevertheless, falling oil prices no doubt contributed to a bullish trend in the Indian stock market, as you can see in the graph below.
As the chart above shows, the bullish trend correlated with falling oil prices. Yet with the recent sell-off by foreign portfolio investors, it seems the good times have come to an end. Have they?
In the next part of this series, we’ll cover the controversy surrounding the minimum alternate tax and how this has enraged foreign institutional investors with holdings in the Indian capital markets.
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