Foreign investors have diverted their attention from China to embark on a substantial stock buying spree in India, amounting to a staggering $9 billion. This influx of capital has positioned them as the dominant purchasers in the Indian equity market for the current financial year. According to NSDL records, foreign institutional investors (FIIs) have only been net sellers on 8 out of 51 trading sessions in FY24. In contrast, domestic institutional investors (DIIs) have purchased stocks worth approximately Rs 6,500 crore, significantly lower than the Rs 72,000 crore invested by FIIs in Indian rupee terms.
The ongoing rally of the Nifty by 8.5% in the June quarter, nearing all-time peak levels, has solidified India's appeal. This surge in foreign investment comes as China's economic rebound, which was observed earlier this year, lost momentum in the second quarter. Rahul Singh, CIO of Tata Mutual Fund, suggests that the post-lockdown recovery in China proved to be temporary, resulting in normalized equity flows to the Chinese markets. Meanwhile, India finds itself in an advantageous position due to the cyclical depression of growth in developed economies and the subdued nature of China's structural growth. Singh believes that India's growth premium can be sustained under these circumstances.
The premium of Nifty50 over emerging markets has expanded from the 45-50% range to 60-70%. Furthermore, there are minimal foreseeable challenges to this narrative, with key risks being fluctuations in crude/energy prices and domestic political shocks, according to Singh. Chris Wood of foreign brokerage firm Jefferies emphasized that global investors, not just specialists focused on Asian and emerging markets, should invest in India. Wood expressed favoritism for the Indian stock market over a ten-year period, citing uncertainties surrounding the long-term direction of China. This sentiment aligns with the recent trend of foreign investors selling mainland Chinese shares. In May, they sold $1.71 billion worth of these shares, following a $659 million sell-off in April. Similar to India, markets in Japan and South Korea have also reaped the benefits of waning interest in the Chinese reopening theme. Japan's Nikkei has seen a 30% increase this calendar year, while South Korea's Kospi has surged by 17.5%. Despite the recent recovery in Chinese shares due to a rate cut by its central bank, analysts anticipate sustained FII inflows to Dalal Street in the near term.
Umesh Kumar Mehta, CIO of SAMCO Mutual Fund, attributes the continued inflow of foreign investment to India's resilient economy, with GDP growth reaching 5-6% while developed economies grapple with the possibility of recession. The positive sentiment on Dalal Street has been further fueled by the March quarter earnings season, leaving more bulls than bears in the market. Nomura, a global brokerage firm, has set a target of 19,872 for the Nifty by the end of March, while Goldman Sachs envisions the index reaching 20,000. Although consensus projections indicate a 20% year-on-year increase in Nifty earnings growth for FY24, Jefferies notes that this figure appears high on a headline basis. Domestic earnings growth for FY24 is expected to slow down to 19%, partially due to a higher base in the financial sector. Meanwhile, foreign-related earnings are predicted to rise by 21% YoY, driven by a rebound in the metals, oil, and gas sectors. The Nifty is currently trading at a 12-month forward P/E of 19x, which surpasses the upper end of the one standard deviation band on a long-term basis.
Comments
Post a Comment