Source: Zhitong Finance

Goldman Sachs Group strategist said that once India's election is over, foreign capital may accelerate its inflow into its $4.4 trillion stock market.

Sunil Koul, the bank's Asia Pacific stock market strategist, said in an interview in Singapore, “Some people are still hesitating before the election. Once the election is over, you may see many people entering the market.” He added that overvalued stocks are another commonly mentioned reason to stay away from the stock market, but strong profit growth for companies should solve this problem.

Global investors snapped up a net $21 billion of Indian shares in 2023, but the pace slowed this month ahead of the April-May elections, and Prime Minister Narendra Modi is expected to win a third term. Many funds still have small holdings in Indian stocks.

“If you look at the global capital pool, which is even larger than that of Asia and emerging markets, then India is still underweighted,” Koul said. Goldman Sachs analysis found that the share of global mutual funds with total assets of about 2.4 trillion US dollars in India was nearly 150 basis points lower than historical levels.

Global funding flocks to India as metrics reach record highs

India's benchmark stock index, which is at an all-time high, has just risen for the eighth year in a row. Investors are betting on the country's booming economic growth prospects and seeing it as an alternative to the Chinese stock market.

Goldman Sachs has a basic assumption about “policy continuity” after India's election, and expects a compound annual revenue growth rate of about 15% this year and next, so it has increased its holdings in this market. He added that this should depress valuations. The NSE Nifty 50 Index is currently trading at a premium of about 50% compared to other stock indexes in the Asia-Pacific region.

Modi's ruling party, the BJP, won three key state elections last month and defeated the opposition in elections in two of them, strengthening his efforts to be re-elected for a third time.

Koul said that in recent months, “many regional fund companies located in other parts of Asia have shown interest.” Furthermore, he said that funds from South Korea and Brazil are also considering increasing investment in India.

According to some investment institutions, the Indian stock market is likely to be the next key investment target for foreign investors after the Japanese stock market, thereby continuously boosting the Indian stock index.

Since 2023, foreign investors, global activist investors, hedge funds, and Buffett's Berkshire Hathaway have been pouring capital into the Japanese stock market. Last week, the Nikkei 225 index just recorded its best weekly performance in 22 months, and at the beginning of this week, the rise in Japanese stocks seemed to show no sign of stopping. As of Monday's close, the Nikkei 225 index was trading at 35901.79 points, up nearly 1% during the day. At one point, it had risen above 36,000 points in the intraday period, the first time since February 1990.