India Outlook Improves with Rising Credit Flows
India’s market outlook is strengthening, with bank credit growth reaching its fastest pace in more than a decade, according to the outlet. Foreign equity inflows have returned, and central bank measures are supporting the rupee.
Jefferies’ global head of equity strategy, Christopher Wood, said there are positives in the Indian domestic story, in his latest GREED & fear note published on Friday.
Portfolio Revamp
Against this backdrop, Jefferies has reshaped its India long-only portfolio. HDFC Bank, India’s largest private lender, is being removed, along with PB Fintech, the owner of Policybazaar.
MCX and Lenskart Solutions will replace them, while REC makes way for Bajaj Finance. Eternal’s allocation rises by one percentage point, funded by a reduction in Bharti Airtel.
Related: Coal India expands into iron ore sector
Foreign investors bought a net $2.12 billion of domestic equities in July, as India benefited from the unwind out of the memory chip trade. However, they remain net sellers for the year, with outflows totaling $25.86 billion, according to the filing.
Domestic Lending
The acceleration in domestic lending is a more important signal, Wood said, with lending climbing to 17-18 per cent year-on-year, led by corporate lending of about 20 per cent. Loans to agriculture and retail borrowers are also expanding at healthy rates.
Policy-driven inflows are adding a macro cushion, with the Reserve Bank of India’s foreign-currency inflow scheme mobilizing about $41 billion by the end of July. They expect inflows to reach $80 billion-$100 billion by the September 30 deadline.
The removal of tax on interest income on foreign purchases of government bonds has generated $8.7 billion in net inflows since early June, according to exchange data.
Related: RBI likely to keep rates steady on inflation fears
Wood said, “All this increases the likelihood that the rupee should stabilize.” The currency recovered to 95.17 per U.S. dollar, as of July 31, from a low of 96.96 in May.
Market Outlook
As the Indian market outlook continues to strengthen, it’s likely that we’ll see more foreign investment in the country.
The current trends in domestic lending and foreign investment are positive signs for the Indian economy.
It is a single fact.
