High-level decline of 10%, has the Indian stock market bubble burst? Goldman Sachs warns it could get worse

Since reaching a historical high on September 27, the Indian SENSEX index has fallen by 10%, raising concerns about whether the Indian stock market bubble has burst.

Recently, Goldman Sachs analysts released a report warning that slowing consumption and profit constraints may further worsen the predicament of the Indian stock market.

As of now, the Indian SENSEX index is at 77,479.90, down 0.13% today.

Weak earnings, high inflation... Indian stock market suffers heavy losses

Jay Narain, Managing Director of Goldman Sachs FICC, stated that the pullback in the Indian stock market is due to "earnings."

Currently, the slowdown in urban consumption has become "evident," affecting several brands including Nestlé, Unilever, KFC, and Asian Paints. Unfortunately, the Indian market lacks valuation support, making it insufficient for investors to wait and speculate whether this is just a fleeting quarter or a more prolonged economic slowdown.

While consumption is slowing, the Reserve Bank of India (RBI) has been calling for a reduction in unsecured loans, and Goldman Sachs believes that "this may not be a coincidence."

Moreover, the consumption slowdown does not seem easy to resolve, as inflation remains a major obstacle. In October, India's inflation rose by 6.2% year-on-year, exceeding analysts' expectations and higher than the previous value of 5.5% in September.

The combination of weak earnings and increasing macroeconomic concerns means that the battle between fundamentals and capital flows is currently dominated by the former, with the Indian market having fallen 10% from its peak. Gaurav Bhatia, Vice President of Goldman Sachs Securities and Trading, stated, "This is not over yet":

“India's pain will go from bad to worse.”

He provided two pieces of data: disappointing performance from Indian financial services firm Fusion Microfinance and Honasa Consumer, the parent company of the DTC maternal and infant care brand Mamaearth, during the long holiday weekend.

Among them, Fusion Microfinance's annualized credit cost reached 20% in the first half of the year, and auditors expressed doubts about the company's ability to continue operating.

Honasa Consumer's rating was downgraded to "hold." The growth of its core brand Mamaearth was only 5.8%, and the company's management also admitted during a conference call that the brand's development is "challenging."

Coincidentally, Citigroup recently also downgraded its rating on the Indian stock market due to concerns about profit growth momentum. Data shows that since October, foreign investors have sold more than $13 billion worth of Indian stocks. Goldman Sachs expects India's GDP growth to be 6.3% in 2025, below general expectations.

Lyon Securities expresses optimism, valuation is attractive

On the outlook for the Indian stock market, CLSA has expressed a different view and increased its investment in the Indian stock market. The agency stated:

"After Trump took office, India is the country least likely to be affected by tariff increases."

It is worth noting that in October, due to investors' eagerness to "buy the dip," a large amount of funds flowed into ETFs and index funds, helping local institutions maintain ample cash reserves. The funds flowing into equity mutual funds increased by 20% month-on-month, reaching a record USD 5 billion.

CLSA pointed out that India offers a relatively stable foreign exchange environment, and the recent decline in stock prices will make valuations in the region more attractive