Overseas funds are piling money into Indian stocks, marking a strong return to the $5 trillion market.
Image: Bloomberg4 min read Last Updated : Sep 21 2024 | 9:01 AM ISTBy Abhishek Vishnoi and Winnie HsuOverseas funds are piling money into Indian stocks, marking a strong return to the $5 trillion market after election-related uncertainty earlier this year triggered a brief hiatus.At $8.5 billion, net foreign purchases this quarter are poised to be the highest since the middle of 2023, data compiled by Bloomberg show.
With bets on policy continuity restored after Prime Minister Narendra Modi secured a third term in power and Indias weighting surpassing Chinas in some global indexes, the outlook for flows looks promising, especially as the Federal Reserve has started cutting interest rates.The surge in inflows is also a sign of investors growing comfort with Indias equity valuation which is expensive relative to emerging-market peers as well as its own history as the nations benchmark NSE Nifty 50 Index heads for a ninth straight annual gain.Despite higher valuations, Indian equities remain attractive relative to other markets where growth prospects are more subdued, said James Cheo, chief investment officer for Southeast Asia and India at HSBC Global Private Banking - Wealth in Singapore.
Indias growth story is supported by strong corporate performance and favorable economic conditions.India has increasingly been touted as the next engine of global growth as Chinas economy falters amid a lack of strong stimulus, a property crisis and persistent deflationary pressures.
The International Monetary Fund expects India to become the third-largest global economy by 2028, while Bloomberg Intelligence says it can be the top contributor to worldwide growth by then.The South Asian nations gross domestic product expanded 6.7 per cent from a year earlier last quarter.
While that fell short of some estimates, it was far ahead of Chinas figure of 4.7 per cent.September looks set to be the fourth straight month of overseas flows into India.
Foreigners had offloaded some $1 billion worth of shares in the April-June quarter.
While election results in early June showed Modis party failed to win an absolute majority, it secured sufficient support from key allies to form a coalition government and return to power.The MSCI India Index has climbed 7 per cent this quarter in dollar terms, while a broader gauge of emerging-market equities is up about 2 per cent.The Indian measure, on course for a sixth straight quarterly gain, is twice as expensive as the MSCI Emerging Markets Index based on one-year forward earnings valuations.
The Nifty 50 Index is trading at a multiple of about 21 times, versus a 10-year average of 18 times, data compiled by Bloomberg show.IPO BoomOverseas money is also chasing returns in Indias booming primary market, the worlds busiest this quarter.
Local firms are seeking to benefit from an expanding economy and while smaller initial public offerings have dominated fund-raising this year, billion dollar deals are now coming to the market.Foreign investors, who had shunned India due to their short-term investment horizons and due to the allure of Chinas cheap valuations, are now coming back, said Deven Choksey, managing director at KR Choksey Shares - Securities Pvt.
in Mumbai.
Rotation toward China has failed once again and now the money is coming back to where the growth is.As stocks have continued to rally, the cost of hedging against potential declines in the Nifty 50 gauge has also increased.
Its now about 45 per cent higher than the average for the past year.Market watchers are also on guard for any signs of populism as Modis party has announced cash handouts in some states ahead of regional polls.
Some advisers to Indias rich investors, such as Avendus Wealth Management Pvt.
and Julius Baer Wealth Advisors Pvt., say they have advised clients to trim allocations to pricier pockets of the market.For now though, India is winning favor among global funds thanks also to a stable currency.
Frequent interventions by the nations central bank have transformed the rupee from Asias most volatile currency to one of the least.The return of overseas investors shows that a market delivering returns cant be ignored for long, said Sumeet Rohra, a fund manager at Smartsun Capital Pte in Singapore.
Indias weight has also risen substantially in MSCI indexes.First Published: Sep 21 2024 | 9:01 AMIST