Stories
Foreign Investors Exit India: Are Giants Failing to Adapt to New Economy?
- •Foreign investors are pulling money from Indian equities, with $26 billion in outflows this year, despite India being the world's fastest-growing major economy.
- •Bernstein suggests many large Indian companies are slow to adapt to technological disruption, failing to justify their high valuations.
- •Mid-cap companies show stronger earnings growth (31%) compared to Nifty 50 companies (11%), indicating a disconnect between India's overall growth and its largest stocks.
- •Reliance Industries and Mahindra & Mahindra are rare large-cap exceptions, investing in new growth areas like digital services, new energy, and electric vehicles.
- •Persistent FPI outflows are also driven by higher US bond yields, though some Indian market valuations have "run ahead of themselves" in the short term.
Key Questions Answered
Foreign portfolio investors have resumed selling Indian equities because India's corporate giants have been slow to adapt to technological disruption, lacking the high growth needed to support sky-high valuations. Additionally, higher US bond yields and a reluctance among large firms to invest in emerging technologies have driven these persistent outflows.
Mid-cap and small-cap companies have greater exposure to manufacturing, fintech, and consumer technology, reporting an average earnings growth of 31% in the June quarter compared to 11% for Nifty 50 companies. However, they remain difficult for large institutional investors because they are sub-scale with low free floats and limited liquidity.
Reliance Industries and Mahindra & Mahindra stand out as rare large-cap plays that are seeing stronger structural growth. Reliance has expanded into digital services and new energy, while Mahindra has increased its presence in electric vehicles, giving them the scale needed to attract institutional capital despite broader market struggles.
