Comment by Riaz Haq yesterday

India's problems pre-date the US-Iran war and the Strait of Hormuz closure.

The Indian rupee has been falling for more than a year.

Foreign capital has been fleeing India since well before the current Hormuz crisis.

AI adoption has been cutting IT services jobs for a year and it will hurt India's services exports which help offset its large goods trade deficits.

Comment by Riaz Haq 2 hours ago

India races to shield economy from Iran war-driven oil shock, capital stress | Reuters

https://www.reuters.com/business/energy/india-races-shield-economy-...

MUMBAI, May 13 (Reuters) - A sustained spike in energy prices triggered by the Iran war has clouded India's macroeconomic outlook, spurring crisis-era measures from policymakers to shield Asia's third-largest economy from external headwinds.

The most severe disruption ​of global energy supplies in history, which began in late February, is stressing India's external sector ‌by making imports significantly more expensive while keeping overseas investors away from local assets.

Economists have marked down growth forecasts for the economy, lifted inflation projections and are forecasting persistent pressure on the rupee with India staring down the barrel of a third consecutive year of a ​balance of payments deficit.

India’s heavy reliance on oil imports leaves the currency particularly vulnerable among emerging markets if ​the Iran crisis drags on. The country imports about 90% of its oil needs and ⁠about 50% of its gas requirements.

 Managing the current account credibly, financing it, and preventing further currency depreciation are big ​imperatives for India this year amid the Gulf crisis, Chief Economic Advisor V. Anantha Nageswaran said on Tuesday.

The energy shock from ​the U.S.-Iran conflict is forecast to widen India’s current account deficit to 2.5% of GDP in the fiscal year ending in March 2027 from 0.9% in the previous year.

Looking to manage the strain, policymakers have turned their attention to crisis-era measures including exhorting citizens to cut down on consumption that uses up foreign exchange.

Indian Prime Minister Narendra Modi on Sunday urged a range of measures to conserve foreign exchange reserves while late on Tuesday night the central government hiked ​tariffs on precious metal imports ​as a way to curb ⁠demand and cushion the rupee.

Comment by Riaz Haq 2 hours ago

Foreign investors’ exit from India at record high

https://www.ft.com/content/b64c331b-76f3-4326-807c-3513e6d862b6?syn...

Billions of dollars pulled from stocks

Portfolio investors have pulled out Rs2tn ($21bn) from Indian stocks in the last two months, making this the worst year thus far for foreign flows since the markets were opened to overseas investment in 1993. The Rs2.06tn sold this year builds on the Rs1.66tn offloaded during the last calendar year. A report by brokerage firm JM Financial shows that aggregate foreign holdings in Indian stocks have now fallen to a 14-year low of 14.7 per cent.

Is the worst over?

A Goldman Sachs report published on Saturday, titled Outflows Fade, But Re-entry Waits, suggests that the bulk of the selling may be behind us, and the downside risk from incremental foreign portfolio investor selling is probably capped at another $4bn-$5bn.

However, it also cautions that this does not imply the likelihood of a quick reversal. When oil prices corrected in early April following a US-Iran ceasefire agreement, foreign investors did not use the opportunity to re-enter India. Any hope that a broader de-escalation in the Middle East will trigger a resurgence of inflows is, therefore, misplaced.

Indian market valuations remain unattractive, and allocations to emerging markets are flowing predominantly into South Korea and Taiwan, where semiconductor giants are capitalising on the AI boom. Though concentrated in a handful of companies, their market weight and strategic influence in the AI industry are considerable. The Indian market is significantly stymied by the lack of any prospects of prominent AI plays at the moment.

The sell-off in stocks is not confined to foreigners. Retail ownership in Indian stocks has declined 9.2 per cent since March 2025. However, the one cohort that is holding steady is domestic mutual funds, which have hit record highs. As volatility has risen, retail investors have increasingly chosen to channel money into markets through systematic investment plans from mutual fund houses, which are monthly, fixed-sum contributions that function as a form of forced saving. Persuaded by the logic of paying an average price over a longer term, investors have stayed the course even as returns have languished. The benchmark Nifty 50 index is down 8.4 per cent this year.

The question now is where will Indian markets go from here. It looks like it will mostly be sideways. The floor may be in place, but the ceiling looks pretty fixed. The market will continue to be propped up by the quiet discipline of the domestic retail investor — people dutifully feeding their funds each month, largely indifferent to the mayhem unfolding around them. Unfortunately, that is not a foundation for a rally, it is just a holding pattern. 

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