Dalal Street is currently grappling with a severe downturn, as Indian equities experience intense selling pressure that has erased nearly Rs 30 lakh crore in market value from BSE-listed firms. Market analysts are increasingly concerned that the current trajectory could lead to the worst annual performance for Indian stocks since the 2008 global financial crisis. Data indicates that the Nifty 50 has declined by approximately 14 per cent this year, marking its steepest annual drop in at least 18 years. According to Bloomberg, India has become the worst-performing major market globally in 2024, with the exception of Indonesia. A primary driver of this volatility is the sustained withdrawal of foreign institutional investors (FIIs), who have pulled out more than Rs 3 lakh crore, or nearly $32 billion, from the market this year.
The downturn is widespread across the Nifty 50, where 38 of the 50 constituents are trading lower for the year. Notable laggards include ITC, which has fallen 36 per cent, followed by Maruti Suzuki at 34 per cent, and both Jio Financial Services and HDFC Life Insurance, which have each declined by 31 per cent. HDFC Bank has also seen a 30 per cent drop. The broader market has faced even steeper losses; the Nifty Midcap 100 has fallen 8 per cent this year, with a significant portion of that decline occurring in the most recent week. Mid-cap stocks like KPIT Technologies and Aditya Birla Fashion and Retail have plummeted 54 per cent and 50 per cent, respectively. Small-cap shares have suffered similarly, with KEC International down 56 per cent and Inox Wind down 52 per cent.
Foreign portfolio investors (FPIs) accelerated their exit in October, withdrawing a net Rs 47,955 crore between October 1 and 15. Vikram Subburaj, CEO of Giottus.com, attributed the exodus to a combination of currency volatility, geopolitical risks, and the impact of the July 2024 Union Budget, which increased long-term capital gains tax from 10 to 12.5 per cent and short-term capital gains tax from 15 to 20 per cent. "India has made equity investment more expensive through higher taxes," Subburaj noted.
Beyond tax implications, Subburaj highlighted that foreign investors are grappling with operational uncertainties regarding tax liabilities during fund restructuring. As of October 15, foreign investors held equity assets valued at Rs 65.94 lakh crore. Subburaj emphasized that while tax adjustments are a factor, the government must also address the practical difficulties funds face regarding liability settlements. "Lower tax rates alone would leave these difficulties unresolved," he stated, suggesting that authorities should evaluate the revenue impact of higher taxes against the operational challenges currently hindering foreign capital inflows.
