Can investors remain hopeful as India's stock market collapse wipes out $133 trillion in market value?

The Indian stock market has lost over £1 trillion as a result of investors moving to China

Has the rising star of the market reached its lowest point?

Speaking on Bloomberg, Chiranjivi Chakraborty claims that India's "loyal retail traders" are being put to the ultimate test. When an unexpected economic slowdown and analyst downgrades to companies' earnings forecasts hit India's richly priced shares, a long stock market boom in September came to a head, wiping out £1.02 trillion in valuations. An estimated £26 billion was taken out of global funds between October and February.

Inflows into domestic mutual funds have decreased by 30% since a record high in October, suggesting that even local investors are losing interest in the market. The BSE Sensex Index rose 187% between the March 2020 COVID-19 pandemic and September 2024, making India a recent emerging-market darling. However, the index has dropped more than 10% since then.

According to Veena Venugopal of the Financial Times, many small investors in the Mumbai bourse only began investing during the Covid-era boom, so this is their first market downturn. Given that there are no imminent "triggers" for a recovery and that there is a great deal of risk as Donald Trump gets ready to announce new "global tariffs," local fund managers are feeling hopeless. "China gains when India loses." With Hong Kong's Hang Seng Tech Index rising 25% this year due to the DeepSeek frenzy, Chinese technology has diverted the attention of international money managers.

According to Reuters, India's NSE Nifty 50 had its worst losing run since 1996, with five consecutive months of losses through February. Particularly hard hit are smaller stocks; the Nifty small-cap 100 index fell 22% from its peak in September.

In the first half of March, foreign portfolio investors sold £3.05 billion worth of shares of IT, making it the latest target. Since a sizable portion of Indian tech revenue originates in the US, the industry is vulnerable to Trump's tariff whims.

Has India reached the bottom?

According to Craig Mellow of Barrons, Indian stocks are still among the most expensive in the world by international standards. The price/earnings (p/e) ratios have returned to their historical averages, leading some to argue that the recent losses represent a "healthy correction." State spending appears to be "picking up again" after "sputtered" following last year's elections.

Trump is not as incensed by India's exports, which are primarily services rather than goods. Furthermore, there is a demographic dividend occurring, with a median age of 28 (as opposed to 38 in China).

Indeed, since the beginning of the month, the BSE Sensex has rallied 6.5 percent, but it still takes courage to buy in. Retail investors giving in and selling will be the final nail in the coffin, according to Arthur Budaghyan of BCA Research. He estimates that before the bottom is in, there will be "at least another 15 percent drawdown in Indian stocks".