JPMorgan predicts foreign investors flocking to Indian stocks after LS elections

Indian equities will attract more foreign inflows after the Lok Sabha elections as the Indian economy is growing at decent pace, besides the Federal Reserve’s rate cuts acting as catalysts.
Rajiv Batra of JPMorgan Chase & Co. on Wednesday said that the positioning of global funds in India stock market remains is predicted and investors will use any correction as an opportunity to increase holdings. His views come on the back after overseas flows became more volatile ahead of the 2024 Lok Sabha elections due to concerns over stretched valuations. The Lok Sabha elections are slated to start from next month and continue till the first week of June. 

“Foreign investors who didn’t increase relative positioning in India over last 2-2.5 years waiting for this clearing event, will start focusing back on growth-driven policies or reforms,” Batra, Asia strategist at JPMorgan, told Bloomberg in an email interview.

Batra added that rising investor interest in India is forming a “virtuous cycle” of liquidity, sell-side coverage, investor participation and capital issuance.

“We estimate that if all benchmarked investors (EM, Asia ex-Japan, global ex-US and global) simply close their underweight positions on India, this would lead to $100 billion in inflows over the next few years,” he said.

Besides JPMorgan, Goldman Sachs Group had also predicted more foreign inflows as PM Narendra Modi is set to come back for a third term. He was first elected in 2014. PM Modi’s third term is viewed as a continuation of market-friendly policies, spending on infrastructure and a push for foreign direct investment.

As per National Securities Depository Ltd. data, global funds’ holdings of Indian stocks stood at $763 billion at the end of February. 

In November 2023, Goldman Sachs Group Inc upped India’s stock market rating citing its strategic appeal. India, the global investment bank said, should see “the best structural growth prospects in the region” with mid-teens earnings growth over the next two years. 

The Indian market’s strategic appeal, due to its largely domestically-driven growth, offers investors a wide array of “alpha-generating “themes. This included Make-in-India, large cap compounders and mid-cap multibaggers. 

“These ‘alpha’ opportunities, which are more widely present in the onshore market, counterbalance the structural challenges of slowing growth stemming from the housing sector downturn, high debt levels, and adverse demographics,” the Goldman Sachs noted.