GDP Growth Hits Two-Year Low: What’s Next For India’s Stock Market?

India’s once-roaring economic growth hit a snag in the September quarter, expanding at its slowest pace in nearly two years. This development has stirred concerns among market participants, with experts predicting near-term stock market weakness, though many remain optimistic about the country’s long-term prospects.

The NSE Nifty 50 Index is already down around 8%, from the record posted in September, with foreign investors pulling out $2.6 billion from equities in November. Adding to the already heavy pressure, the bonds, freshly incorporated in JPMorgan Chase & Co.’s important global index, registered the first-ever monthly outflow in November.

These might appear negative signals in the short term; however, analysts point out that some possible factors would lead to recovery, like adjustments in the policy of the Reserve Bank of India (RBI).

Analysts Weigh In on India’s Economic Slowdown

Analysts like those from Emkay Global Financial Services, including Seshadri Sen, highlighted that some weakness in the markets is already priced into them. However, they anticipate that prices may go down, but it will not be a major fall. They could mention the low upside due to poor earnings and overvalued highs.

The slowdown may give the RBI additional space for intervention like reducing repo and cash reserve ratio (CRR). According to analysts at Jefferies Financial Group, poor GDP data along with tighter fiscal will lead to some decline in yields. Nomura’s chief economist, Sonal Varma, and calls the GDP data to be a “game-changer” for the upcoming RBI meeting and is expecting a 25-bps repo rate cut along with CRR cut of 50 bps for liquidity in the banking sector.

Michael Wan of MUFG Bank notes that restrictive monetary policies and macroprudential measures constitute one of the root causes of the slowdown impacts of portfolio flows and currency stability. The analysts in Barclays, meanwhile, expect the RBI to exercise caution and leave the repo rate at 6.5% owing to the cost the high consumer inflation imposes on easing cycles.

India’s Long-Term Growth Remains Promising

Despite the hiccup, many experts are optimistic about India’s sustained growth story. Vikas Pershad, an equities portfolio manager at M&G Investments, termed India’s economy as the “longest-tail growth story among major markets.” He remains confident in its GDP multiplier effect and growth momentum over the medium term.

RBI’s Policy Decisions Under Scrutiny

While RBI Governor Shaktikanta Das prepares for another policy meet in December, this balancing act between inflation control and growth support remains as critical as ever. Consumer inflation came in such that it breached the RBI’s tolerance band in October, making aggressive rate cuts improbable. However, many analysts believe that easing is overdue and that it is essential to boost the economy.

While near-term market turbulence appears inevitable, experts agree that the Indian economy retains strong fundamentals. The NSE Nifty 50 Index’s correction could present entry opportunities for long-term investors, with a year-end target of 25,000 still in sight.

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