Equities in one of the most-preferred emerging markets have come under pressure in October after a record 11-month rally as pricey valuations, slowing profit growth and renewed investor interest in rival Chinese stocks all combined to break the momentum. Overseas funds have withdrawn more than $8 billion on a net basis, wiping out the bulk of 2024 inflows. Goldman Sachs Group Inc. this week became the latest bank to downgrade Indian stocks.
Even with such growing skepticism, the MSCI India Index has lost just about 6% so far this month, when a broader gauge of Asian equities is also down almost 4%.
What’s helped prevent a bigger slump is domestic money. Indian mutual funds, banks and insurance firms have plowed more than $10 billion into the stock market in October, taking inflows for the year to over $50 billion, poised to be an annual record.
“Local funds have been smoothing the selloff or else it would have been a market crash-like scenario given the selling we have seen from foreign investors,” said Abhishek Thepade, an Oslo-based portfolio manager with DNB Asset Management AS. “Domestic inflows have become the mainstay for Indian markets now.”
A surge in retail investing has seen Indian mutual funds garner more than $2 billion of flows each month through recurring investment plans. A broader shift toward financial assets in the world’s most-populous nation, from fixed deposits and physical assets like gold and property, is also bringing more liquidity for equities and equity-linked products.
Goldman Sachs tactically lowered Indian shares to neutral from overweight this week, citing slowing economic growth. That’s just days after a downgrade by quant strategists at Bernstein Societe Generale Group.
But there are others who remain bullish.
UBS Global Wealth Management said on Wednesday that it’s time to “buy the dip” as the soft patch in India’s growth and earnings appears transitory. Christopher Wood, Jefferies Financial Group Inc.’s global head of equity strategy, said earlier in the week that India remains the most attractive stock market for the next 10 years largely due to its earnings outlook.
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