Foreigners are returning to Indian stocks after dumping them in the first half as they look for higher returns amid expectations that major central banks will slow their hiking cycles as price pressures ease, reports Reuters.
Fears of an economic recession have lifted hopes that central banks will dial back or even halt the rate hikes to avert a slowdown. US Fed officials indicated in the minutes of their July meeting released last week that they would adopt a less aggressive stance if inflation starts to recede.
According to stock exchange data, foreigners have invested $6.4 billion in Indian equities since the start of July, after dumping over $27 billion-worth over the previous six months.
Domestic investors bought over $30 billion worth of stocks in the first half, helping to prop up the market. But this month, overseas investors have taken the baton, pouring in over $5 billion on hopes that Indian companies will deliver stronger earnings and that a fall in crude oil prices will help narrow the country's current account deficit.
Analysts also expect the return of foreign money into Indian equity and bond markets to help the rupee find some reprieve, after slumping over 6.7 per cent against the dollar this year.
Since mid-June, India's major stock index has surged 11.5 per cent, which compares with the MSCI World index's gain of 6 per cent, and MSCI Emerging Market index's decline of 2.8 per cent.
"Foreigners clearly underestimated how India would tackle the pandemic and the economic recovery post-pandemic has been robust in an uncertain global environment," said Neha Pathak, investment specialist for India Equities at BNP Paribas Asset Management.
"With well-developed and robust equity markets, which have delivered great returns, Indian equities will be hard to ignore for any global investor."
Despite a lacklustre earnings performance in the June quarter, several companies have expressed confidence that a drop in commodity prices will bolster their margins in upcoming quarters.
Top companies like Hindustan Unilever and Tata Motors flagged in recent reports that falling commodity prices from red-hot levels will aid margin improvement in coming quarters.
Aishvarya Dadheech, fund manager at Ambit Asset Management, said Indian equities would be bolstered by a strong earnings momentum and moderating inflation.
"Earnings growth is going to be much better compared to other emerging markets. So, the deep cuts from FII (foreign institutional investors) ownership will reverse from here."
