Epic winning run for India stocks sputters as foreigners exit

Bloomberg

The winning streak for Indian stocks is losing momentum as sentiment sours on the prospect of tighter monetary policy and smaller stimulus spending in the coming year.
India’s benchmark S&P BSE Sensex has slumped 3.6% since the end of September, halting a rally that ran for six straight quarters and doubled the index’s value. Since reaching a record high in October, the gauge has approached a technical correction, with foreign investors pulling out more than $4 billion from market over the past three months.
Historically high valuations made some analysts cautious. India’s key equity gauges are trading at 20-21 times their estimated forward 12-month profits compared with 12 times for the MSCI Emerging Markets Index.
A withdrawal of monetary stimulus may cause a jump in volatility reminiscent of 2003 and 2009, when prices fluctuated while equity returns remained modest, according to StanChart’s India wealth unit.
India’s equity market will likely “transition from ‘early-cycle’ to ‘mid-cycle’ as monetary policy normalises with central banks becoming less accommodative,” according to its research note.
Meanwhile, India’s capital market regulator asked merchant bankers to review their standards for due diligence and wants better price disclosures amid a frenzy of IPOs by money-losing technology startups.
Merchant bankers need to engage with a wider set of potential investors to strike a balance between issuers’ aspirations and investor interest, Securities and Exchange Board of India Chairman Ajay Tyagi said at an event organised by the Association of
Investment Bankers of India.
The regulator’s comments comes after the debacle of India’s largest IPO, Paytm, in which investors lost money after the listing, denting confidence. India’s equity markets have been on a tear this year, buoyed by a central bank that slashed interest rates to record lows and
millions of new individual
investors seeking higher returns in riskier assets.
The rally has encouraged at least half-a-dozen technology startups to seek public listings but the valuations commanded by these companies is often criticised.
To protect small investors, the markets regulator in November proposed to tighten rules on how money raised by such unprofitable technology start-ups through IPOs can be used and how quickly big investors can exit.