Investors are betting on India. Does the market live up to the hype?
As China cools, India’s markets are rising up the agenda for global investors. Recent inflows could be just the start of things to come.
India’s high-flying stock market has been a standout in 2023. It is one of the few global equity markets to set all-time highs this summer, with inflows from foreign investors exceeding USD15 billion year-to-date. 1
Although the market is now trading at nearly a 70% valuation premium to emerging markets, there is good reason to believe the positive momentum will continue.
India looks set to remain the fastest-growing large economy for the foreseeable future, with the IMF predicting it will become the world’s third-biggest economy by 2028, up from fifth today . Its equity market now ranks as the second biggest among emerging markets and world’s fifth largest by market cap.
Solid growth story
Indian equities benefit from strong underlying fundamentals. The country has made good progress over the past decade in deleveraging corporate balance sheets — in contrast with China’s highly leveraged growth—and cleaning up its banking system.
While India remains more than 15 years behind China in terms of economic size, it is only five years behind in internet penetration and digital transformation. Over half its population has access to the internet, and digital services are acting as an accelerator to economic development.
Against this backdrop, India’s onshore debt market, which provides among the highest absolute yields in Asia Pacific,2 is an attractive and increasingly accessible investment opportunity.
Although a spurt in inflation to 7.4% in July from 4.8% in June means a rate cut is not likely until at least 2Q24, Societe Generale strategists and economists believe the current hiking cycle has already peaked.
Moreover, if ongoing discussions to include Indian government bonds in major global indices come to fruition, this could trigger an additional USD30-40 billion of inflows. This would, in Societe Generale’s calculations, move the yield curve lower (by 40-60 basis points) over the subsequent 2-3 quarters.
And downside risk to the Indian rupee appears to be capped with expectations that commodity prices are likely to be contained and India’s service exports—and especially exports of digital services — remain resilient.
India’s markets are also becoming easier to access for international investors. Government officials and regulators are eager to attract foreign capital from offshore investors, which is seen as key to fuelling economic growth.
To that end, in addition to easing access to its onshore debt market, India is also moving to bring Offshore Derivative Instruments (ODIs) back home to the International Financial Services Centre at the Gujarat International Finance Tec-City (GIFT City).3 Over time, this should deepen liquidity in equity derivatives and currency futures, making it easier for foreign investors to hedge local securities and foreign exchange exposure.4
These developments, along with India’s solid fundamentals, make its capital markets an attractive investment opportunity for offshore investors.
Societe Generale has been committed to India for more than 35 years, serving some of the leading onshore clients as well as offering a full suite of global markets products — from securities to derivatives — to foreign investors.
As one of the most active market-making banks in the local FX spot/swaps and rates derivates markets, and a market-maker in Indian government bonds and select quasi-sovereign bonds, Societe Generale is well-positioned to help domestic and international clients pursue India’s rich and enduring opportunities.
‘This Month in Asia’ is a regular series by Societe Generale’s Global Markets division that brings together regional experts across Research, Equities, and Fixed Income & Currencies to share insights and its capabilities in Asia markets for clients around the world.
Subscribe to our “This Month in Asia” series: https://insight.sgmarkets.com/finder/publication/301544?vnext=true
For more information on Societe Generale’s Global Markets research, please visit: https://insight-public.sgmarkets.com/
1. World Economic Outlook, October 2022: Countering the Cost-of-Living Crisis (imf.org)
IMPORTANT NOTICE: This website and its contents are for informational purposes only and is not a recommendation or an offer or solicitation for the purchase or sale of any security or financial instrument. SG Research is for institutional and professional clients only. Visitors to this site should not take any investment decision based on the summary material provided here, which should be read in the context of the underlying research report made available to subscribers.
Unless otherwise stated, any views or opinions expressed in the presentation are solely those of the presenter(s) and may differ from the views and opinions of others at, or other departments or divisions of, Societe Generale (“SG”) and its affiliates. No part of the presenter(s) compensation was, is or will be related, directly or indirectly to the specific views expressed herein. This material is provided for information purposes only and is not intended as a recommendation or an offer or solicitation for the purchase or sale of any security or financial instrument. The information contained herein has been obtained from, and is based upon, sources believed to be reliable, but SG and its affiliates make no representation as to its accuracy and completeness. The views and opinions contained herein are those of the author of this material as of the date of this material and are subject to change without notice. Neither the presenter(s) nor SG has any obligation to update, modify or otherwise notify the recipient in the event any information contained herein, including any opinion or view, changes or becomes inaccurate. To the maximum extent possible at law, SG does not accept any liability whatsoever arising from the use of the material or information contained herein.
This presentation should not be construed as investment research as it has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Therefore, even if it contains a research recommendation, it should be treated as a marketing communication. This publication is not subject to any prohibition on dealing ahead of the dissemination of investment research. Notwithstanding the preceding sentence SG is required to have policies in place to manage the conflicts which may arise in the production of its research, including preventing dealing ahead of investment research.