Societe Generale’s Santosh Ejantkar and Tanmay Purohit note India’s equity market has slipped to seventh globally, overtaken by South Korea and Taiwan as their semiconductor-heavy markets benefit from the AI boom. Foreign portfolio outflows of about $56.9bn have weighed on INR, with the RBI under pressure to stabilise the currency and 10-year IGB yields above 7.0%.

Outflows, weak earnings hit valuations

"In EM, India’s equity market has recently slipped to seventh globally by market capitalisation, overtaken by South Korea and Taiwan, both of which have surged into the $5tn club."

"The underperformance is reflected in significant foreign portfolio investor (FPI) outflows of about $56.9bn since October 2024, which have also contributed to depreciation in the INR."

"The RBI is under pressure to stabilise the currency, with some expectations of a 25bp rate hike to 5.50%, though most economists anticipate no change (SG forecast +25bp hike)."

"If rates are held, the RBI may adopt additional measures such as FX restrictions or liquidity tools to stop the INR from slipping towards 97 (vs USD) again."

"Meanwhile, as 10y IGB yield stabilizes above 7.0% market the corporate bond markets are weakening, with benchmark AAA yield above 8% and issuance slowing sharply to INR1.07tn ($11.2bn) in April-May, the lowest for the first two-month period of any financial year since 2022."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)