Indian stock markets: why are foreigners in buy mode again?

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According to stock market data, foreigners have invested $6.4 billion in Indian stocks since the start of July, after selling more than $27 billion in the previous six months.

Domestic investors bought more than $30 billion worth of stocks in the first half, which helped support the market. But this month, foreign investors have picked up the slack, pouring in more than $5 billion in hopes that Indian companies will post stronger profits and that a drop in crude oil prices will help reduce the government’s deficit. current account of the country.

Analysts also expect the return of foreign money to Indian stock and bond markets to help the rupiah find some respite, after falling more than 6.7% against the dollar this year.

Since mid-June, India’s main stock index has jumped 11.5%, which compares to the MSCI World Index’s 6% gain and the MSCI Emerging Market Index’s 2.8% decline. .

“Foreigners clearly underestimated how India would tackle the pandemic and the post-pandemic economic recovery has been robust in an uncertain global environment,” said Neha Pathak, investment specialist for equities. Indian companies at BNP Paribas Asset Management.

“With well-developed and robust stock markets, which have generated excellent returns, Indian equities will be hard for any global investor to ignore.”

Despite a lackluster earnings performance in the June quarter, several companies expressed confidence that lower commodity prices will bolster their margins in the coming quarters.

Leading companies like Hindustan Unilever and Tata Motors have signaled in recent reports that falling commodity prices from scorching levels will help improve margins in the coming quarters.

Aishvarya Dadheech, fund manager at Ambit Asset Management, said Indian equities would be supported by strong earnings momentum and subdued inflation.

“Earnings growth is going to be much better compared to other emerging markets. So the deep cuts in FII (foreign institutional investor) ownership will reverse from here.”

According to data from Refinitiv, Indian large and mid cap net profits are expected to grow by 18.9% in 2023, the highest rate in Asia.

Some foreign fund managers are also diverting money from China, where stocks have been hit by an economic slowdown, fresh outbreaks of COVID-19 and a crisis in the real estate sector.

According to a report by BofA Global Research, the allocation of emerging markets funds to India increased to 19.7% in July from 18.1% in June, while the allocation to China fell to 36, 2% versus 39.4%.

While China and the rest of the world face growth challenges, India stands out with better earnings and GDP expectations, said Amit Sachdeva, research analyst at HSBC.

The rupee has also performed better than some of its emerging market counterparts recently. Over the past month, the rupee has fallen just 0.03%, while the Chinese yuan, South African rand and Malaysian ringgit have fallen 1.43%, 0.92% and 0.74 % respectively.

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Domestic and Foreign Institutional Investments in Indian Markets

Morgan Stanley expects Asian economies such as India and Indonesia, which focus on domestic demand, to be more resilient than those that rely on exports, as slowing demand from developed countries affects shipments.

“We continue to be constructive on India, Indonesia and the Philippines as they are well positioned to generate domestic demand alpha,” the brokerage said.

DECLINE IN DOMESTIC INVESTMENTS

At the same time, domestic investors in India reduced their positions in August, attracted by a rise in bank deposit rates which provide them with risk-free money.

The data showed domestic investors have sold $773 million worth of Indian stocks so far this month.

However, some analysts have said the slowdown in domestic investment may just be a miss. According to the BofA report, domestic investments through Systematic Investment Plans (SIPs), in which investors invest money every month, remain robust. Monthly inflows have jumped to over $1.5 billion in each of the past 10 months.

“Domestic investors can reduce some (positions). They have been buyers across the board this year,” said Dadheech of Ambit Asset Management.

“Selling them won’t have a negative impact on the market because they won’t go gaga selling.”

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