- Date : 10/03/2023
- Read: 4 mins
Indian stock market's benchmark indices have lagged behind Dow Jones, S&P 500, Nikkei, and other global market indices since January 25, 2023. Why? What are the reasons? Continue reading to learn about the facts, statistics, and top 3 reasons.
Indian Stock Market: Why is it Lagging Behind Global Markets?
Indian Stock Market and Global Markets in 2022
The Indian stock market performed extremely well in 2022. The returns by BSE Sensex and Nifty50 were 4.44% and 4.32%, respectively. Nifty delivered a 14% CAGR return in the last seven years (from 2016 to 2022).
However, global markets faltered last year. The Russia-Ukraine war, rising crude oil prices, and spiking inflation worsened the markets the world over. In 2022, major benchmarks were in the red. Dow Jones Industrials, NYSE Comp, S&P 500, and Nasdaq Composite dropped by -6.9%, -9.2%, -18.1%, and -32.5% in total return last year.
The US faced one of the worst inflation in 2022. It peaked at 9.1% in June 2022. The average inflation was over 7.3% last year. In response, the Federal Reserve started hiking key rates in March 2022. By the end of 2022, FED hiked the rate by 425 basis points. This negatively affected the stock market because rate hikes increased the cost of doing business. It is because the rate hike made borrowing money expensive.
Indian Stock Market Lagging Behind Global Markets in 2023
In 2023, Nifty has dropped by -1.87% and Sensex by -0.79% till now. However, Dow Jones, S&P 500, and Nasdaq have increased by +2.96%, +8.02%, and +15.33%, respectively.
Performance of other major global indices in 2023 YTD are:
- European Indices:
- Dax: 8.8%
- CAC40: 8.12%
- FTSE 100: 4.35%
- Asian Indices:
- Nikkei 225: 7.6%
- Topix: 6.36%
- Kospi: 10.97%
- Kosdaq: 15.31%
Overall, the Indian stock market lags behind the global stock market this year.
Why is the Indian Stock Market Lagging Behind Global Markets?
1. Hindenburg Research Report & Bloodbath of Adani and Banking Stocks
The underperformance of the domestic stock market started on January 25, 2023. A US-based short-selling firm named Hindenburg Research report pointed out various negative aspects of Adani Group. This news made the Adani Group stocks lose US$48 billion on the same day.
The percentage drop of different Adani Group stocks on January 25 was:
- Adani Enterprises: -18.52%
- Adani Total Gas: -20%
- Adani Green Energy: -19.99%
- Adani Ports: -16%
- Adani Power: -5%
Within one week from the publication of Hindenburg Research, the cumulative loss of Adani Group companies shot up to US$100 billion. Nikkei Asia's analysis shows that Adani's total owed debt is Rs 3.39 trillion, equivalent to more than one percent of the Indian economy.
As SBI (the largest bank in India) has a debt exposure of Rs. 27,000 crores on Adani Group, banking stocks were also affected seriously. The total debt exposure of Indian banks to Adani Group is Rs. 80,000 crores, as per the CLSA report.
Also Read: SBI's Share in Adani's Debt Burden. Should you Trade in SBI Stocks after the Adani Saga?
In January 2023, the Indian stock market witnessed a flight of foreign investment (FPI). The outflow amounted to Rs. 28,852 crores.
There are 3 major reasons for the flight of foreign investor capital out of the Indian stock market. They are:
- FPIs believe the valuation of Indian shares is way to expensive to that of global shares
- Fund relocation from the Indian market to Taiwan and China due to comparatively cheaper valuations
- Reopening and easing controls of COVID-19 in Beijing
3. Underperformance of the Indian Rupee against the US Dollar
The US Dollar witnessed its best-ever annual increase in 7 years. The annual gains made by the US Dollar vis-a-vis a basket of currencies was 7.9% in 2022. Though major benchmarks in India outperformed the global stock market trends, Indian Rupee (INR or ₹) against the US Dollar (USD or US$) dropped by around 11% last year. In 2022, INR became the worst-performing currency in Asia.
In the first 3-weeks of January 2023, INR strengthened by 1.6%. From January 1 to January 22, the exchange rate of US$1 dropped from US$₹82.7433 to US$₹80.9647. As the month progressed, the exchange rate dropped again. By the end of January 2023, INR/USD dropped by 1.18% to Rs. 81.786. The fall continues even in mid-February. On February 15, 2023, INR/USD was Rs. 82.7207.
Also Read: How will the Indian Rupee Falling against the US Dollar affect your Finances?
As export plateaued and imports remained steady, the deteriorating Indian Rupee widened India's current account deficit (CAD). This again shook the confidence of the FPIs and stock investors, causing the Indian stock market to underperform, especially against its global competitors.
Indian Stock Market: Why is it Lagging Behind Global Markets?
Indian Stock Market and Global Markets in 2022
The Indian stock market performed extremely well in 2022. The returns by BSE Sensex and Nifty50 were 4.44% and 4.32%, respectively. Nifty delivered a 14% CAGR return in the last seven years (from 2016 to 2022).
However, global markets faltered last year. The Russia-Ukraine war, rising crude oil prices, and spiking inflation worsened the markets the world over. In 2022, major benchmarks were in the red. Dow Jones Industrials, NYSE Comp, S&P 500, and Nasdaq Composite dropped by -6.9%, -9.2%, -18.1%, and -32.5% in total return last year.
The US faced one of the worst inflation in 2022. It peaked at 9.1% in June 2022. The average inflation was over 7.3% last year. In response, the Federal Reserve started hiking key rates in March 2022. By the end of 2022, FED hiked the rate by 425 basis points. This negatively affected the stock market because rate hikes increased the cost of doing business. It is because the rate hike made borrowing money expensive.
Indian Stock Market Lagging Behind Global Markets in 2023
In 2023, Nifty has dropped by -1.87% and Sensex by -0.79% till now. However, Dow Jones, S&P 500, and Nasdaq have increased by +2.96%, +8.02%, and +15.33%, respectively.
Performance of other major global indices in 2023 YTD are:
- European Indices:
- Dax: 8.8%
- CAC40: 8.12%
- FTSE 100: 4.35%
- Asian Indices:
- Nikkei 225: 7.6%
- Topix: 6.36%
- Kospi: 10.97%
- Kosdaq: 15.31%
Overall, the Indian stock market lags behind the global stock market this year.
Why is the Indian Stock Market Lagging Behind Global Markets?
1. Hindenburg Research Report & Bloodbath of Adani and Banking Stocks
The underperformance of the domestic stock market started on January 25, 2023. A US-based short-selling firm named Hindenburg Research report pointed out various negative aspects of Adani Group. This news made the Adani Group stocks lose US$48 billion on the same day.
The percentage drop of different Adani Group stocks on January 25 was:
- Adani Enterprises: -18.52%
- Adani Total Gas: -20%
- Adani Green Energy: -19.99%
- Adani Ports: -16%
- Adani Power: -5%
Within one week from the publication of Hindenburg Research, the cumulative loss of Adani Group companies shot up to US$100 billion. Nikkei Asia's analysis shows that Adani's total owed debt is Rs 3.39 trillion, equivalent to more than one percent of the Indian economy.
As SBI (the largest bank in India) has a debt exposure of Rs. 27,000 crores on Adani Group, banking stocks were also affected seriously. The total debt exposure of Indian banks to Adani Group is Rs. 80,000 crores, as per the CLSA report.
Also Read: SBI's Share in Adani's Debt Burden. Should you Trade in SBI Stocks after the Adani Saga?
In January 2023, the Indian stock market witnessed a flight of foreign investment (FPI). The outflow amounted to Rs. 28,852 crores.
There are 3 major reasons for the flight of foreign investor capital out of the Indian stock market. They are:
- FPIs believe the valuation of Indian shares is way to expensive to that of global shares
- Fund relocation from the Indian market to Taiwan and China due to comparatively cheaper valuations
- Reopening and easing controls of COVID-19 in Beijing
3. Underperformance of the Indian Rupee against the US Dollar
The US Dollar witnessed its best-ever annual increase in 7 years. The annual gains made by the US Dollar vis-a-vis a basket of currencies was 7.9% in 2022. Though major benchmarks in India outperformed the global stock market trends, Indian Rupee (INR or ₹) against the US Dollar (USD or US$) dropped by around 11% last year. In 2022, INR became the worst-performing currency in Asia.
In the first 3-weeks of January 2023, INR strengthened by 1.6%. From January 1 to January 22, the exchange rate of US$1 dropped from US$₹82.7433 to US$₹80.9647. As the month progressed, the exchange rate dropped again. By the end of January 2023, INR/USD dropped by 1.18% to Rs. 81.786. The fall continues even in mid-February. On February 15, 2023, INR/USD was Rs. 82.7207.
Also Read: How will the Indian Rupee Falling against the US Dollar affect your Finances?
As export plateaued and imports remained steady, the deteriorating Indian Rupee widened India's current account deficit (CAD). This again shook the confidence of the FPIs and stock investors, causing the Indian stock market to underperform, especially against its global competitors.
