India Market Rout Trigged By Economy Slowdown, Not China Rally, Says Neelkanth Mishra

The selloff in the Indian markets could be the result of a slowdown in the domestic economy rather than the reallocation of capital to China, according to Axis Bank's Chief Economist and Head of Global Research  Neelkanth Mishra.

There is no direct correlation between foreigners selling domestic stocks and investing in Chinese equity, Mishra told NDTV Profit. He said that the rally in Indian stocks this year justified the observed correction. So the relationship of capital reallocation to China is "frankly not a sign of anything".

The near-term problem for the domestic market lies with the "meaningful slowdown" of India's economy, as many high-frequency indicators have worsened in the last four to five months, said Mishra. "Our expectation is that this is temporary."

According to Mishra, the growth will return to normal as the government increases its fiscal spending and the Reserve Bank of India announces quantitative easing.

The economy should revive starting in January and February, according to Mishra. "Some of what we are seeing in India is a reflection of our own weak economy, and so not so much about people dumping India to buy China."

Gross Goods and Services Tax collection growth in September reached 6.5%, marking a 40-month low. The output growth of the eight core sectors declined in the latest reading.

Furthermore, the low price of Chinese equities may lead to a permanent reallocation, potentially causing India to return to its previous price-to-earnings multiple.

Foreign investors have offloaded over Rs 50,000 crore from domestic stocks in the last six sessions.

However, domestic institutions continue to buy on dips, taking advantage of any offloading by foreign investors. During the same period, domestic investors have mopped up stocks worth Rs 53,000 crore.

On the second quarter results front, there will be broad-based cuts across sectors, Mishra said. As the previews have started getting published, there have been cuts happening to industries from financials and autos to cement, he said.

"Barring a few, like jewellery and other space, where the growth has been, the quarterly top-line updates have been slightly better than expected, I think everywhere we are seeing weakness," Mishra said.