India Attracts Robust Foreign Investments in August Amidst Market Volatility

Amid recent turmoil in Chinese equities, foreign investors are turning their attention to India as a promising investment destination. Despite facing eight declines in key stock indices over the past 14 trading sessions, India has managed to attract a significant amount of foreign investment. In August alone, foreign investors poured in $1.11 billion into Indian equities, surpassing both emerging and developed markets.

This shift in investment patterns comes as foreign investors pulled out funds from other markets, with Taiwan witnessing the highest outflows at $3.9 billion, followed by Brazil, Indonesia, South Korea, Thailand, and South Africa. In contrast, India remains a favored choice for foreign institutional investors, with year-to-date purchases reaching about $16 billion in local equities and a total of $19 billion since April 1, according to SEBI data.

Analysts highlight that foreign investors are drawn to India’s positive growth prospects and stability amid global uncertainties. Despite challenges like rising domestic inflation and profit booking, India’s resilient investment and real estate cycles, along with consistent earnings performance from Indian companies, contribute to its attractiveness.

Market experts note that India’s strong macroeconomic foundation, improvements in consumption sectors, and positive perception act as safeguards against market downturns. However, the recent corrective phase and declines in flagship indices, the Sensex and Nifty, reflect the ongoing market consolidation after months of gains.

While concerns about FPI outflows due to rising US bond yields have emerged, ICICI Securities believes that such worries may be unfounded. The surge in US bond yields, triggered by a rating downgrade by Fitch, could impact FPI flows towards India.

Nonetheless, experts suggest that the US 10-year bond yield is likely near its upper range, easing concerns about FPI outflows. The report from ICICI Securities emphasizes that structural domestic equity flows in India remain positive, as evidenced by record-high Systematic Investment Plan (SIP) flows.

Looking ahead, market analysts anticipate robust growth in India for the second quarter of 2023, despite the recent corrective phase. The Indian markets’ solid foundation and positive sentiment provide optimism, although elevated valuations across sectors might limit further upward potential.

Overall, India’s resilience in the face of global uncertainties and its potential for growth continue to attract foreign investors, positioning the country as a standout destination amidst a dynamic global market landscape.