Indian Stock Market Mirrors US Downturn Amid FPI Outflows, Says CEA Nageswaran

The decline in Indian stock markets today directly reflects the performance of the US stock market, Chief Economic Advisor V Anantha Nageswaran said on Friday during the media briefing while presenting quarterly GDP data.

The Indian stock market saw parabolic growth between July and October 2024, but those sharp gains are now being unwound due to foreign portfolio investment outflows, according to Nageswaran. As foreign investors take profits following the market's rapid rise, this has triggered a market correction in India.

“The stock market almost went parabolic between July and October, and those parabolic gains are now currently being unwound at the marketplace. This is due to the FPI outflows or the consequence. As we speak today, we notice the US stock market is significantly down today, and the Indian market has reflected that as well," Nageswaran noted.

The comments came after the Indian equity benchmarks have fallen more than 15% from their record highs, following weak quarterly earnings, estimate cuts, and prolonged selloff by the overseas investors.

Foreign investors have pulled out more than Rs 1.12 lakh crore from India's equity markets so far in 2025. They sold Rs 78,027 crore in January alone, according to NSDL data. The outflows primarily stem from macroeconomic concerns driven by tariff tensions after the return of Donald Trump as President of the United States.

As of today, global stock markets are experiencing a downturn, with the US stock market notably down. This global trend has had a direct impact on India’s equity markets, which have reflected similar declines. The Indian stock market, heavily influenced by global cues, tends to follow broader market movements, especially when foreign investors withdraw capital.

Citing the recent comments of market veteran Chris Wood of Jefferies on being positive on the Indian market, Nageswaran said, “The growth numbers we have seen, including the revisions of the previous year, validate the point of the long-term attractiveness of the Indian market at this stage, notwithstanding recent volatility, which is partly driven by global development and stellar gains of the previous year."

This also implies that the recent phase of market volatility can be seen as a natural correction after a period of rapid growth. While FPI outflows and the broader global market slump have caused short-term turbulence, it is important to remember that such market fluctuations are common and part of the regular market cycle. Investors should be mindful of the long-term growth prospects, despite the short-term volatility currently being observed.