(Bloomberg) -- Indian stocks tumbled on Thursday after returning from a holiday as concerns about a slowing economy and a pick-up in selling by global funds amid a surge in Chinese equities weighed on sentiment.
The NSE Nifty 50 index slid 2.1%, the most since Aug. 5, to fall past its 20-day moving average. The gauge was the worst performer among major Asian markets, even outpacing losses in Hong Kong-listed Chinese stocks.
This week’s decline in local shares follow a strong rally that has made India’s $5 trillion market one of the world’s most expensive. The momentum has recently waned due to softer economic data and as some global investors likely shifted allocations following the monster rally in Chinese equities.
“Our internal model is indicating that the market is now in a relatively expensive zone,” said Saurabh Rungta, chief investment officer at Avendus Wealth Management Pvt. “Markets can correct by 10%-15% at any point, and it is high time we see it taking a breather.”
At about 22 times one-year forward earnings, the Nifty is the most expensive in Asia, and commands a 35% premium to its historical average, data compiled by Bloomberg show. Indian equities are still headed for a record ninth straight year of annual gains, having risen over 16% in 2024.
Still, concerns over growth are mounting after gross collections of goods and services tax slowed to 6.5% in September from 10% in August. That’s the slowest pace of growth in over three years, according to local media. Additionally, key industries data for August combined with the softness in September’s purchasing managers index underlined the weakening growth impulse of the economy.
Foreign investors pulled over $750 million from local shares Monday, the most since early June. The strong surge in Chinese equities has sparked concerns that global money managers are taking profits from Indian shares to make room for China in their portfolios, after having plowed almost $12 billion last quarter.
“There has been a notable outflow of foreign institutional investor money from India to China over the past few days,” said Santosh Meena, head of research at Swastika Investmart. “Profit-booking ahead of state elections and concerns over elevated valuations have added to the downward pressure.”
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