Foreign Investments In Indian Equities Could Hit $100 Billion, Says JPMorgan

Foreign investors, especially those from markets like China, Malaysia, and the Middle East, are expected to significantly increase their investments in Indian equities, with inflows projected to reach $100 billion, according to Rajiv Batra, strategy head, South East Asia, India, JPMorgan. 

A strong start has already been seen, with $11 billion flowing into the market over the past seven months, indicating robust investor confidence despite high valuations. "The pace of foreign investment suggests that investors are optimistic about the market’s trajectory," Batra told NDTV Profit.

The high price-to-earnings multiples of 50-70 in Indian equities, which are perceived as expensive, have not deterred foreign investors. They are attracted by the growth potential in India, which offers better value compared to the negative or zero growth rates in their home markets, he said. Indian markets, even with a modest 8-9% earnings growth, are viewed as a more promising investment opportunity. "Despite high valuations, the growth story and the potential for returns in India continue to draw interest," said Batra. 

Large-cap stocks, boasting a 15% return on equity and $60 billion market capitalisation, are particularly appealing for those seeking stable growth. These stocks offer a compelling mix of stability and growth, making them an attractive option for global investors. 

Market dynamics are also contributing to this influx of foreign capital. An increase in primary and secondary market issuances is seen as necessary to manage liquidity and prevent overvaluation in the secondary market. There is significant demand from both active and passive investors as India gains prominence in global indices like the MSCI, where it is inching closer to China’s weightage. "As India’s weight in global indices increases, we expect even more interest from international investors," said Batra.

The adaptability and innovation within the Indian market, particularly in technology and financial literacy, are considered key drivers of long-term growth. Investment themes such as electric vehicles, infrastructure, and semiconductors are gaining traction, supported by government initiatives. "The focus on innovation and the government’s supportive policies make these sectors particularly attractive for long-term investments," he said.

Despite concerns over high valuations in sectors like power and infrastructure, the historical performance of sectors such as FMCG and private banks suggests that high valuations do not necessarily hinder growth, according to Batra. The focus remains on sectors with potential for innovation and long-term development. "While valuations are high, the growth potential in these sectors justifies the premiums," he said.