Overseas investors drawn to Indian assets as confidence returns

Electronic board indicates the latest stock figures at the the National Stock Exchange (NSE) in Mumbai, India, on Friday, Dec. 16, 2016. Photographer: Dhiraj Singh/Bloomberg

Global funds are turning buyers of Indian assets, with rupee bonds sweeping in strong monthly inflows and equities showing early signs of a sentiment shift as recovery gathers pace.

Foreigners net bought $515 million of stocks in the week ended March 21, marking the first weekly inflow this year. They’ve plowed $3 billion into local bonds so far in March, the most since 2017. The influx helped the main NSE Nifty 50 Index and the rupee erase their year-to-date loss on Monday.

Indian assets are catching a break after lagging most major markets. Improving economic indicators, central bank’s liquidity steps, and bets on an interest rate cut next month have revitalized sentiment. India’s domestically-driven market is also regaining appeal as Chinese and US equities lose steam, offering an alternative for investors seeking shelter from US trade policies.

“Not all foreign investors are putting money into China, and now the US is also not doing too well. So, India is among few places in emerging markets where they are still long-term bullish,” said Amit Goel, co-founder and chief global strategist at Pace 360. “We are in a good space to attract more inflows.”

Although the stock inflow is modest compared to the $15 billion-plus outflows since January, it marks a welcome shift in sentiment following a brutal selloff that erased over a trillion dollars in value.

The swift rebound from a low in early March has vaulted Indian equities to one of the top performers this month among more than 90 global indexes tracked by Bloomberg. The optimism has spilled into the debt market, where the 10-year sovereign bond yield hit a three-year low on Friday. The rupee is now Asia’s best performer this month, after hitting a series of record lows earlier in the year.

To be sure, foreign inflows remain at risk from Trump administration’s April 2 deadline for reciprocal tariffs. For equities, the momentum will be tested by the upcoming March-quarter earnings and wagers of stronger growth fueled by the central bank’s monetary support. The Nifty is still down about 10% from its September peak.

For now, fiscal year-end dollar selling by exporters — who were caught off guard by the rupee’s recent gains — is helping the currency.

“Exporters, who were previously on the sidelines, are now selling dollars pro-actively,” said VRC Reddy, head of treasury at Karur Vysya Bank Ltd.