India’s share in global market cap highest in June so far this year
Foreign portfolio investors (FPIs) have become net buyers of Indian equities since March. In June, they bought stocks worth $6,717 million, the highest monthly infusion by FPIs in 2023 so far.
A turnaround in foreign fund flows has come as a shot in the arm for Indian equities lately with key benchmark indices soaring to new highs. Foreign portfolio investors (FPIs) have become net buyers of Indian equities since March. In June, they bought stocks worth $6,717 million, the highest monthly infusion by FPIs in 2023 so far. Little wonder then that India’s share in global market capitalization rose to 3.3% in June, showed a Motilal Oswal Financial Services analysis. June’s figure is the highest in 2023 and above historical average of 2.6%.
Further, a recent run up in Indian stocks has translated into a 17.2% jump in market capitalization over last twelve months compared to a 7.3% rise in global market capitalization. “Barring Russia and China, all key global markets witnessed a rise in market cap over the last 12 months," the Motilal Oswal report said.
Not just India, other emerging markets like South Korea and Taiwan are also seeing FII inflows, benefitting from delayed recovery in China. However, for India, there are a slew of other positives such as a relatively better economic growth outlook and easing inflation, which may have reignited foreign interest. Further, wide-held expectations are that the Reserve Bank of India’s rate tightening cycle has likely peaked and this bodes well for recovery in consumption demand.
That said, India’s valuations are at a premium to Asian peers. MSCI India index is trading at a one-year forward price-to-earnings multiple of nearly 19x, showed Bloomberg data. There are some downside risks such as lower-than-anticipated rain. Also, potential impact on rural demand if El Niño were to play out.
“In the near term, inflation could edge higher due to rising food prices amidst uneven rainfall trend. For instance, we are already seeing retail prices of some food products including cereals, pulses and vegetables (especially tomatoes, potatoes and onions) moving higher," UBS Securities India analysts said in a 5 July report. “We expect government to keep intervening (including ann-ouncing stock holding limits, releasing cereals from FCI stocks, reducing import duties on wheat, etc.) to help soften the impact on food prices," they added.
On the global front, hawkish developed central banks could opt for more interest rate hikes, making emerging markets less attractive for foreigners. An event to watch out for is June quarter earnings performance of India Inc. Easing commodity price could aid recovery in operating margin for many sectors, however trends in volume growth may vary.
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