A rebound in Chinese equities is unlikely to spur a strong rotation of funds out of India, where the benchmark index is headed for a record high amid a surge in foreign inflows.
That’s the view from Sunil Koul, Goldman Sachs Group Inc.’s Asia Pacific equity strategist, who says the Indian market’s solid fundamentals will continue to lure long-term investors. Goldman has a target of 20,000 for the NSE Nifty 50 Index by end-March, implying an upside of almost 7% from current levels.
“You may not see money coming out of India or at least you may not see a sharp selloff” even if China recovers, he said in an interview on Friday, adding that India’s valuations have also corrected from a peak and first-quarter earnings were better-than-expected.
In the longer run, Goldman sees India recording the largest increase in global market cap share – from a little under 3% in 2022 to 8% in 2050, and 12% in 2075.
To be sure, Koul does anticipate a recovery in China but expects it to be “much more gradual” and driven by underlying earnings versus the fast valuation recovery seen from October to January, he said. “So, I think in that scenario you could still see China doing well but India also equally performing decently overall.”
Thanks to a retail investing boom brought about by the pandemic, India’s market has also lured huge, steady inflows from domestic institutions as well as mom-and-pop traders. That helped avoid a sharp selloff even when foreigners dumped a record $17 billion of local shares in 2022. Global funds have bought $7.6 billion worth of equities so far this quarter, set for their biggest purchases since December 2020.
“India is seeing broader financialization of household savings and this trend is likely to persist,” Koul said. At 5%-6%, the exposure of Indian households to the equity market is still fairly low versus other parts for the world, including Asia, he added.