Foreign investors have sold ₹1.5 lakh crore worth of Indian stocks as of November 4, 2025, according to NSDL data. Continued selling will make this the largest sell-off in about 20 years.
“India benefitted from investors leaving China, but this benefit has run out,” said Mike Coop, Chief Investment Officer, EMEA at Morningstar Investment Management.
“I think India was like the mirror image of China when the latter collapsed, and people thought it was uninvestable. India boomed and benefited from the reshoring from China to India. We have reached the end of that and probably, that’s not a great starting point for Indian equities. The valuation level has not been positive as it was,” he said.
“On a PE basis, Indian markets have remained expensive relatively to peers in most years [in the past nine years],” said Dhananjay Sinha, CEO and co-head of Institutional Research at Systematix, an Indian financial services firm. Price to earnings (PE) ratio is a measure used to determine if the price of a stock justifies its earnings to the shareholder. “Currently, Indian stocks are trading 22 times their earnings,” Mr. Sinha said.
A section of experts though believes that the market is past the stage of expensive valuations and may now be ready for better returns. “Over the last year, returns have been weak in India, whereas returns in many other parts of the world have been much stronger,” Pranjul Bhandari, Chief Economist ASEAN, HSBC, said.
“Today, we are seeing our relative valuation actually going back to long term average. It’s not looking too rich,” she added.
“This is because investors have understood that earnings growth can’t be in teens when the nominal gross domestic product (GDP) growth is in single digits. A more realistic expectation may trigger foreign investors to return and an improvement in market returns might be around the corner,” Ms. Bhandari said.
Despite divergent views, there is consensus among experts that corporate India’s profits must grow at a faster pace. For FPI participation to revive, either corporate earnings growth must quicken to 15-20% or valuations must compress significantly, Mr. Sinha said. “Currently, trailing earnings over the past 4-6 quarters are flattish, while forward expectations for the next two years are only approximately 10-11%; hardly enticing, especially amid visible downside risks,” he added.
While FPIs are selling, net foreign direct investments (FDI) also trend lower. Total foreign investment, which includes portfolio and direct investment as a share of gross domestic product (GDP), hit a 25-year low in 2024-25, he said. What makes this more concerning is that, FPIs who invest in India based on their conviction in the economy’s long-term growth redeemed for the eighth consecutive week as of October 31, 2025, according to Sunil Jain, V-P of Elara Capital.
A low-performing corporate sector has consequences beyond just the stock market. “Elusive private capital expenditure and slowing household incomes are inter-linked trends that have curtailed private demand and lending growth. These issues, persisting for years and recently intensifying, have been partly offset by government spending on infrastructure and household transfers. Amid intensifying de-globalisation, India’s structural growth outlook faces considerable risks,” Mr. Sinha reiterated.
Adding credence to his view, the World Bank, in its World Development Report 2024, highlighted the need for sweeping institutional reforms in the absence of which developing economies like India can run the risk of slowing down before it becomes a high income economy, a phenomenon that economists call “The Middle Income Trap.”
That being said, conversations about middle income trap happen all over emerging economies in Southeast Asian economies and is not exclusive to India. With policy reforms, India can reduce the risk of structural economic slowdown, Ms. Bhandari asserted.
Published – November 06, 2025 06:00 am IST
