New Delhi, India’s domestic growth story is strengthening despite heavy foreign investor outflows as bank credit growth, corporate lending and the rupee showing signs of improvement, according to Christopher Wood, Global Head of Equity Strategy at Jefferies.
Foreign investors have pulled a net $25.4 billion from Indian equities so far this year, the analyst said in its GREED & fear note. However, they turned net buyers in July, investing $2.45 billion, Wood said in his weekly Greed & Fear note.
Wood attributed the July reversal partly to global investors unwinding positions in the technology-driven memory trade and said the shift in flows was worth monitoring.
India’s system-wide bank credit growth has accelerated to 17-18 per cent year-on-year, the highest pace in more than a decade, according to the note.
In addition, corporate lending has been the strongest component, growing 20 per cent year-on-year compared with 17 per cent growth in agriculture loans and 16 per cent in retail loans.
According to Jefferies, auto and property demand also remained healthy.
Wood also highlighted improving foreign flows into Indian government bonds after the government exempted foreign investors from tax on interest income from such investments.
Meanwhile, foreign investors have recorded net inflows of $8.7 billion into Indian government bonds since the beginning of June.
Separately, the Reserve Bank of India’s scheme to attract foreign currency deposits from non-resident Indians has garnered about $41 billion, Wood said. He expects the inflows to increase further in the coming months.
The measures have also supported the rupee which weakened to 96.96 against the US dollar in May but had strengthened to around 95.17, according to the note.
“All this increases the likelihood that the rupee should stabilise,” Wood said.
Wood remains overweight on India within his Asia Pacific ex-Japan portfolio as India accounts for 12 per cent of the portfolio compared with a benchmark weight of 11.4 per cent.
He also continues to hold Indian government bonds in his global sovereign debt portfolio, according to the note.
The strategist’s constructive view comes even as foreign investors remain net sellers of Indian equities for the year, with domestic flows helping the broader market absorb the pressure from overseas outflows.
