India’s market outlook appears more resilient amid rising domestic credit and strategic foreign currency inflows, even as global investor sentiment remains cautious, according to Jefferies analysis.
India’s market outlook may be finding a firmer base as domestic demand strengthens and foreign currency inflows improve, even though overseas investors remain broadly cautious on local equities, according to a Jefferies research note reported by The Hindu BusinessLine.
Jefferies said India drew $2.45bn of net foreign equity purchases in July, helped by a reversal of the so-called memory trade, but overseas investors were still net sellers of Indian shares by $25.4bn for the year to date. Against that weak equity backdrop, the brokerage said the more encouraging signal is coming from the domestic economy, where bank credit growth has accelerated to 17% to 18% year on year, its fastest pace in more than a decade.
Corporate lending has been the strongest part of that expansion, rising about 20%, while agricultural and retail loans have grown 17% and 16% respectively. Jefferies also pointed to robust demand for automobiles and property, arguing that household consumption and investment are helping to offset the drag from uneven global capital flows.
The rupee outlook has also brightened. Jefferies said the Reserve Bank of India’s effort to attract foreign currency deposits from non-resident Indians has already brought in about $41bn, with the total potentially rising to $80bn to $100bn before the scheme ends. Foreign investors have also channelled $8.7bn into Indian government bonds since the start of June after the interest income on those holdings was made tax-free. Together, those inflows could help stabilise the currency, which weakened to 96.96 per dollar in May before improving to 95.17 at the time of the report.
On interest rates, the RBI left its policy rate unchanged for a fourth straight meeting and kept a neutral stance. Jefferies’ India strategist Mahesh Nandurkar expects just one more 25-basis-point increase in the current tightening cycle, suggesting the central bank is close to the end of its hiking phase. Even so, the firm said the key risk for markets remains the persistence of foreign selling, making the durability of domestic growth and the flow of overseas money crucial to the outlook.
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