fii inflows: Goldman says more global money will flock to Indian markets post election

India may see accelerated foreign inflows into its $4.4 trillion stock market once the national elections are over, according to a Goldman Sachs Group Inc. strategist.

“There are some people who are still hesitant ahead of the elections, and once the election is behind us, you could probably see many coming to the market,” Sunil Koul, Asia Pacific equity strategist, said in an interview in Singapore. Lofty stock valuations are another oft-cited reason for staying away but earnings growth should address that, he added.

Global investors snapped up $21 billion of shares on a net basis in 2023, but the pace has slowed this month ahead of the April-May polls where Prime Minister Narendra Modi is expected to win a third term. Many funds remain light on holdings of Indian stocks.

“If you look at the global pool of money, which is even bigger than what the Asia and emerging markets pool is, that is still underweight India,” Koul said. Global mutual funds with about $2.4 trillion in combined assets are underweight India by close to 150 basis points compared to historical positions, Goldman analysis found.

India’s stock benchmarks, trading at record highs, just clocked their eighth straight year of gains as investors bet on the country’s booming economic growth prospects and see it as an alternative to China’s struggling market.

Goldman has a base case of “policy continuity” for India post-elections, and is overweight the market on expectations of about 15% earnings growth compounded annually this year and the next, Koul said. That should keep a lid on valuations, he added. The NSE Nifty 50 Index is trading at about 50% premium to the rest of Asia Pacific.

Modi’s ruling Bharatiya Janata Party won three crucial state elections and unseated the opposition in two of them last month, strengthening his bid for a third term in office.

There’s interest in recent months from “many North Asia-seeded funds who are based in Taiwan, Hong Kong or China, even regional funds who traditionally have always been more Hong Kong- and China-focused,” Koul said. In addition, funds in South Korea and Brazil are also looking at increasing India exposure, he said.

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