Overseas funds are once again chasing Indian stocks, pumping in money into the $5 trillion market after a brief hiatus.
September looks set to be the fourth straight month of overseas flows into India. But more importantly, at $8.5 billion, net foreign purchases this quarter are poised to be the highest since the middle of 2023, data compiled by Bloomberg shows.
But what is spurring foreign investors to bet on India again after they offloaded nearly $1 billion worth of shares in the April-June quarter?
Here’s a look at the reasons.
Policy continuity: Prime Minister Narendra Modi’s victory in securing a third term has assured policy continuity.
The uncertainty surrounding the election outcome earlier in the year caused a brief outflow of foreign investments, but the re-election has reaffirmed expectations for pro-business policies and reforms that align with the “India Growth Story.”
This has reduced political risk, which is often a key consideration for foreign investors, especially in emerging markets. The Modi government’s focus on infrastructure development, digitalisation, and manufacturing reforms continues to make India an attractive investment destination, according to Bloomberg.
India’s growth vis-a-vis China: In the last quarter, India’s GDP expanded by 6.7 per cent, significantly higher than China’s 4.7 per cent. With China’s economy facing challenges such as weak stimulus, a property crisis, and deflationary pressures, India is increasingly seen as the next global growth engine.
Projections, such as one by the International Monetary Fund (IMF) saying that India will become the world’s third-largest economy by 2028, continue to reinforce the long-term appeal of the Indian market.
India’s weightage in global indices, such as the MSCI Emerging Markets Index, has risen, surpassing China in certain cases. This shift has attracted institutional investors who benchmark their portfolios against these indices.
Strong corporate performance: Although Indian equities are relatively expensive — trading at a premium compared to both their historical averages and other emerging markets (Nifty 50 Index’s price-to-earnings ratio is about 21 times versus a 10-year average of 18 times) — strong corporate earnings and favorable economic conditions justify these higher valuations.
Investors are increasingly willing to pay a premium for Indian stocks because the country’s growth prospects and corporate earnings are perceived to be stronger than in most emerging markets.
Booming IPO market: India has become the busiest market for initial public offerings (IPOs) this quarter. Foreign investors are chasing opportunities in this booming primary market. While smaller IPOs have dominated fundraising so far, larger deals are starting to surface, further attracting foreign capital.
Stable currency: Frequent interventions by the Reserve Bank of India (RBI) have stabilised the Indian rupee. This currency stability is a significant interest for foreign investors who are sensitive to exchange rate fluctuations when investing in emerging markets.
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5 reasons why global investors are pumping money into Indian stocks once again
