Foreign portfolio investors have driven Indian markets higher over the past nine trading sessions, extending the longest sustained inflow streak since mid-2023 and underpinning a sharp rebound in benchmark indices. Between April 14 and April 25, overseas buyers injected approximately $4.1 billion into Indian equities, lifting the Nifty 50 by 6.6 percent and sending the Sensex up by more than 7 percent over the same period. The surge in foreign demand comes amid renewed optimism over a potential U.S.-India trade agreement, attractive valuations, and India’s comparatively robust growth outlook.

Trade Deal Hopes Ignite Inflows

At the heart of the buying binge lies market expectations that a bilateral trade pact between Washington and New Delhi could be announced imminently. U.S. trade officials have signaled that India is likely to be among the first partners to clinch a tariff-reduction deal, spurring hopes of improved market access for Indian exporters. That prospect, coupled with signs that global trade tensions may ease, has prompted fund managers to rotate capital from China and Southeast Asia into India, where per-share valuations remain 10 to 15 percent below historical peaks.

Beyond trade diplomacy, many foreign investors have cited India’s comparatively low equity valuations as a key draw. Large-cap benchmarks now trade at historical forward price-to-earnings ratios that are 20 to 25 percent lower than those of developed markets, making Indian shares appear inexpensive to global allocators. Fundamental analysts point out that corporate earnings in India grew at an average of 18 percent last quarter—well above most peers—yet share prices have not fully reflected this momentum, creating a technical mismatch that foreign quants and systematic funds are eager to exploit.

Resilience Amid Regional Volatility

India’s equity markets have displayed remarkable resilience even as geopolitical tensions escalate elsewhere. Recent cross-border skirmishes with Pakistan over the Kashmir frontier briefly rattled risk sentiment, but inflows persisted, underscoring investors’ confidence in India’s macro stability. With inflation moderating near the Reserve Bank of India’s 4 percent target and GDP growth projected at over 6.5 percent for fiscal 2026—the fastest among major economies—global funds view Indian assets as a strategic hedge against global uncertainty.

The foreign buying spree has supported the Indian rupee, which strengthened by more than one percent against the U.S. dollar during the rally. That appreciation has alleviated some pressure on India’s import bill and helped cap the rise in domestic bond yields. Ten-year government bond yields fell from 7.45 percent to 7.25 percent, providing relief to leveraged borrowers and boosting sentiment in real-estate and infrastructure segments that are sensitive to financing costs.

Sectoral Leaders and Fan Favorites

Financials have emerged as the biggest beneficiaries of the influx, with banking and non-banking financial companies enjoying a combined market-cap gain of 12 percent. Private banks in particular have seen robust share-price rallies, reflecting anticipation of stronger credit growth and widening net-interest margins. Information technology stocks, too, have outperformed, buoyed by the prospect of currency tailwinds and renewed contract wins under the U.S.-India trade arrangement. Meanwhile, consumer discretionary companies—especially fast-moving consumer goods players—have responded to improved household sentiment with a 5 percent bump in share prices.

While foreign buying has taken center stage, domestic mutual funds and retail investors have also stepped up activity. Equity mutual funds recorded net inflows of approximately ₹25,000 crore during the streak, their highest monthly intake since January. Online brokerage platforms report a 30 percent rise in new retail accounts opened in April, suggesting that Indian households are eager to participate in the rally and capitalize on the strengthening market fundamentals.

Several Indian conglomerates have seized the buoyant market environment to refinance debt and tap capital markets. Notably, a leading infrastructure company raised $500 million through its maiden dollar-denominated green bond issue, while a major utility announced plans for a $300 million follow-on equity offering. These moves signal management’s confidence that investor appetite remains strong and that India’s growth story continues to resonate globally.

IPO Pipeline Brightens

The buoyant mood has also reinvigorated India’s initial public offering pipeline. Over a dozen companies, spanning renewable energy, specialty chemicals and pharmaceuticals, are preparing to launch equity offerings in the coming weeks. Bookbuilds for recent listings have been oversubscribed by an average of 60 percent, reflecting both domestic and overseas demand. Market intermediaries expect total IPO proceeds to exceed $5 billion in the next quarter, a rebound from the $3 billion raised during the subdued winter window.

Investors are showing particular enthusiasm for stocks tied to digital transformation and environmental sustainability. Electric-vehicle startups, e-commerce logistics firms and renewable-energy platform providers have collectively gained 10 percent since the start of the buying streak, as global funds look to align portfolios with structural growth trends. Analysts note that India’s recently announced Production-Linked Incentive schemes for clean energy manufacturing could catalyze further foreign interest in related equities.

Risks and Watchpoints

Despite the surge in inflows, strategists caution that risks remain. The Fed’s upcoming policy meeting could recalibrate global yield curves, potentially spurring a reversal of capital flows into U.S. Treasuries. Geopolitical flashpoints—chiefly along India’s western frontier and in the Taiwan Strait—pose intermittent threats to risk-asset sentiment. Moreover, the current rally has pushed some mid-caps to 30 percent premiums over their historical averages, prompting warnings of selective profit-taking ahead of the summer monsoon season, when trading volumes typically thin out.

If maintained, this nearly two-year high in continuous foreign buying could have lasting effects on India’s financial landscape. Sustained inflows reduce the cost of equity capital, encouraging corporate investment in factories, data centers and logistics. They may also help anchor the rupee and dampen imported inflation, contributing to a virtuous cycle of real-income growth and consumer spending. For regulators, the challenge will be to manage the pace of inflows without stifling market dynamism, ensuring that temporary volatility does not morph into destabilizing surges.

Analysts remain optimistic that India’s markets can sustain foreign interest as long as the macroeconomic backdrop stays supportive and bilateral trade negotiations yield concrete outcomes. A confirmed U.S.-India trade agreement, coupled with domestic reforms such as simplified labor codes and expanded infrastructure spending, could extend the buying spree into the year’s second half. For now, Indian equities stand out as a rare bright spot in a world wrestling with rising rates, geopolitical frictions and slowing growth—an opportunity that foreign investors appear keen to embrace.

(Adapted from INvesitng.com)

Categories: Economy & Finance, Strategy