S&P Global Ratings raising India's outlook to 'positive' from 'stable' and a likely easing of political uncertainty post elections should ease investor concerns in coming days and reverse the foreign outflow trend seen in 2024 so far.
Data showed foreign investors have pulled out Rs 17,931 crore from the domestic equity market this calendar so far. While attractive valuations in China stocks following a sharp correction and rising US bond yields are among key reasons, elections in India has also made foreign investors turn wary.
Nomura India said S&P’s action could prove to be the harbinger of more activism by rating agencies in the near future, who could potentially revisit their respective India sovereign credit ratings, once there is more clarity on the election results and the priorities of the new government.
"We anticipate that large amounts of capital currently lie on the sidelines, waiting to be deployed. On the other hand, India’s weightage in MSCI index is inching up, which means passive money will flow in. Private banks can be a big beneficiary of FII inflows as they are already trading at significant discount to their last 10 year P/ABV. Key stocks include HDFC Bank, Kotak Mahindra Bank, Axis Bank, ICICI Bank," Amnish Aggarwal of Prabhudas Lilladher
May has seen Rs 20,153 crore FPI outflows against outflows of Rs 8,671 crore in April. FPIs had moved Rs 25,744 crore out of domestic equities in January, NDSL data suggested.
SBI Research in a note said Standard & Poor's may consider upgrading India's sovereign rating if the country's fiscal deficit gets narrowed meaningfully and the general government debt falls below 7 per cent of GDP on a structural basis.
"Thus, India could see a rating upgrade by FY27… synchronous with the tag of the 3rd largest economy. Buoyant markets could be a harbinger of channelising household financial savings catering to investment needs of the country in the long run," it said.
A survey by Business Today suggested stock market analysts largely sees BJP forming the government for the third time. They anticipate NDA wins in the 300-320 seats.
Nikunj Saraf, Vice President at Choice Wealth said the outcome of the general elections and the subsequent political stability are crucial factors that can attract significant inflows from foreign investors into the Indian market.
"Political stability is seen as a key driver for attracting huge inflows, and the election results are expected to bring about a dramatic change in FPI equity flows," he said.