India Stocks Downgraded: Foreign Funds Seek Value Elsewhere

India’s stock market is projected to trade lower by mid-2027 compared to early 2026, marking the third consecutive quarter of a cut outlook by equity analysts, according to a Reuters poll. This revision comes as foreign investors increasingly seek value in other Asian markets.

Indian shares have fallen over 7% this year, representing their weakest annual performance in more than a decade. This contrasts sharply with gains observed in markets like Japan, South Korea, and Taiwan, as investors find value opportunities in Thailand, Malaysia, and the Philippines.

Key Market Projections

• The Nifty 50 is expected to rise approximately 5% to 25,556 by end-2026, reaching 26,300 by mid-2027, and 27,450 by end-2027.
• The BSE Sensex is projected to hit 81,608 by end-2026, 85,700 by mid-2027, and 89,000 by end-2027.
• These forecasts represent the lowest median levels recorded since polling began for these periods last year.

This modest outlook persists despite India’s economy growing nearly 8% in previous fiscal years and Nifty 50 companies reporting an 18% profit growth in the June quarter. The lack of exposure to the artificial intelligence narrative has also caused India to lag, as suggested by Anil Manghnani of Modern Shares and Stockbrokers.

Drivers of Foreign Outflow

• Overseas investors have sold approximately 2.4 trillion rupees of Indian shares this year.
• This outflow is driven by a preference for cheaper or more AI-exposed opportunities in other regions.
• The Indian rupee has weakened by 6% against the dollar.
• Elevated crude oil prices, near $90 per barrel, further deter foreign investors by eroding dollar returns.

TS Harihar of HRBV Client Solutions identifies oil prices and the rupee as immediate risks for Indian markets. Despite these concerns, over 70% of analysts believe a correction of 10% or more in Indian stocks is unlikely in the next three months.

Optimism about future earnings growth remains among some analysts, while domestic investors continue to provide crucial support. Systematic investment plans contributed over 319.61 billion rupees in July, preventing a sharper market decline.