What are the market’s key concerns:
Foreign institutional selling has been a significant drag on market sentiment and the rupee, forcing the RBI to tighten liquidity by selling US$ (to manage currency volatility), which, in turn, has weighed heavily on domestic investor risk appetite.
The Tantallon India Fund closed 6.4% lower in January, with the market marking a four-month losing streak, the longest in over two decades, on the back of persistent foreign investor outflows (US$25 billion over the past four months, $9 billion in January alone) triggered by a strengthening US$, a steeping US$ yield curve, and a selldown in non-US risk assets, coincident with a reset in expectations on inherently disruptive Trump policy priorities on geopolitics, tariffs and immigration. Despite our portfolio holdings continuing to execute well and deliver on earnings and cash flows, our small and mid-cap tilt has been an additional drag on performance.
As we wind towards the close of the current earnings season, we do expect that market sentiment and the focus on the strength of the underlying fundamentals will be restored on the back of a strong budget (encouraging domestic consumption and ongoing reforms without sacrificing fiscal discipline), the Reserve Bank of India’s (RBI) recent decision to cut interest rates and inject liquidity into the banking system, and expectations that the BJP’s resounding victory in the recent Delhi state elections will encourage an acceleration in infrastructure and industrial capex.
