Foreign inflows may continue driving India’s rally: HSBC

A positive macro backdrop coupled with the rotation of EM flows amid a weaker-than-expected recovery in China has helped drive investment in Indian stocks.

India’s equity market has received about $15 billion in net foreign inflow this year, just about $2 billion shy of erasing last year’s record outflow, according to data compiled by Bloomberg. That support has helped drive the Sensex up 15% from a March low, nearly triple the gain in a gauge of emerging markets.

“It is clear to us that positive momentum has only just begun after a prolonged period of outflows, while India overall appears to be an attractive market,” strategists including Amit Sachdeva wrote in a note. “Both regional and global funds still have large underweight on India.”

The outlook for continued foreign inflow remains positive as the category’s ownership based on market value remains below the long-term average, HSBC says.

Overseas investors are poised to be net buyers of Indian stocks for a fifth-consecutive month, the longest streak of inflows since March 2021. While domestic investors have become a formidable force in deciding the market’s direction, foreigners remain a big driver.

A positive macro backdrop coupled with the rotation of EM flows amid a weaker-than-expected recovery in China has helped drive investment in Indian stocks.