Strong domestic credit growth and increased foreign inflows bolster India’s market outlook, even as global investor caution persists, according to Jefferies.
India’s domestic economy and a rebound in foreign currency inflows are giving markets a stronger near-term foundation, even as overseas investors remain broadly cautious on local equities, according to a Jefferies research note cited by the Millennium Post. The brokerage said India attracted net foreign buying of $2.45 billion in shares in July, helped by a reversal in the so-called memory trade, but foreign investors were still net sellers of $25.4 billion year to date.
The more important shift, Jefferies argued, is in the underlying credit cycle. Bank lending is expanding at 17% to 18% year on year, the fastest pace in more than 10 years, with corporate loans growing about 20%, and agriculture and retail credit rising 17% and 16% respectively. That lines up with broader market evidence from top private banks, where corporate borrowing has recently outpaced retail lending as firms return to mainstream lenders for working capital and infrastructure funding.
Other Indian data points also suggest the domestic backdrop remains resilient. Crisil Ratings said in a separate report that bank credit growth should stay healthy, though it expects the pace to ease to about 14% in fiscal 2025 as deposit growth becomes more important. Crisil sees retail lending around 16%, MSME credit at about 15% and agricultural lending holding at 11% to 12%, helped by monsoon trends and policy support.
Jefferies also pointed to firm demand in autos and property as evidence that household spending and investment are helping offset the drag from volatile global capital flows. On the currency side, the outlook for the rupee has improved as the Reserve Bank of India’s scheme to draw foreign currency deposits from non-resident Indians has already brought in about $41 billion, with Jefferies saying the total could climb to $80 billion to $100 billion before the programme ends. Foreign investors have also poured $8.7 billion into Indian government bonds since early June, after interest income on those holdings became tax-free, and the rupee has steadied from 96.96 per dollar in May to 95.17 at the time of the report.
The RBI has kept its policy rate unchanged for four straight meetings while maintaining a neutral stance. Jefferies strategist Mahesh Nandurkar expects only one 25-basis-point rate increase in the current tightening cycle, leaving the near-term balance tilted towards a market supported by domestic demand, stronger credit growth and better capital inflows, even if foreign equity selling remains a risk.
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