Goldman Sachs Group Inc. predicts a substantial increase in foreign inflows into India’s $4.4 trillion stock market once the national elections conclude, according to insights from Sunil Koul, Asia Pacific equity strategist at Goldman Sachs. Koul believes that some investors remain cautious ahead of the elections, and a surge in market activity is expected once the political uncertainty subsides.
Lofty stock valuations have been a deterrent for some investors, but Koul suggests that earnings growth will likely address these concerns. Despite global investors netting $21 billion in shares in 2023, the pace has slowed in the lead-up to the April-May polls, where Prime Minister Narendra Modi is anticipated to secure a third term. Many funds still maintain limited holdings in Indian stocks.
Koul emphasizes that the global pool of money, surpassing the size of the Asia and emerging markets pool, remains underweight on India. According to Goldman’s analysis, global mutual funds, with approximately $2.4 trillion in combined assets, are underweight India by nearly 150 basis points compared to historical positions.
India’s stock benchmarks, reaching record highs, have celebrated their eighth consecutive year of gains as investors express confidence in the country’s robust economic growth and view it as an alternative to China’s struggling market.
Goldman’s outlook for India post-elections is characterized by “policy continuity,” and the firm maintains an overweight position in the market, expecting around 15% annual earnings growth this year and the next. Koul asserts that this growth should help keep valuations in check. Currently, the NSE Nifty 50 Index trades at about a 50% premium to the rest of the Asia Pacific region.
Following recent victories in state elections, Prime Minister Modi’s Bharatiya Janata Party has strengthened its position, further solidifying his bid for a third term in office.
Interest in Indian markets has surged in recent months, with North Asia-seeded funds from Taiwan, Hong Kong, and China showing interest. Additionally, regional funds traditionally focused on Hong Kong and China, along with funds in South Korea and Brazil, are considering increasing their exposure to India.
