Some observers feared India’s long bull run that has pushed up valuations toward a potential bubble territory could experience a sharp correction if any problems unbalanced the status quo, and finance minister Arun Jaitley did just that when he delivered his fourth annual budget and announced the end of a tax exemption on equity investments from long-term capital gains taxes.

The country could also experience further political risk, especially ahead of elections early next year. Srivathsan Ramachandran, director of institutional equities sales at Spark Capital Advisors, warned that there may be little chance of a turnaround this year.

Furthermore, there has been speculation that a $2 billion bank fraud could sperad and turn into a contagion across India’s financial markets.

Meanwhile, lower earnings growth compared to other developing markets has also dragged on foreign investment demand for this emerging Asian market.

For more information on India’s markets, visit our India category.

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