New Delhi [India], August 21 (ANI): India may be nearing a turnaround in foreign investor sentiment, with foreign institutional investor (FII) inflows returning in July after months of heavy outflows, while market valuations have moved closer to their long-term averages, Jio BlackRock Asset Management said in its August macroeconomic outlook.
The report said the reduction in foreign outflows in June and the return of FII inflows in July suggest that the worst of the foreign investor withdrawal may be behind the market, with early signs of improving sentiment emerging.
Foreign investor flows into India are near historical lows, but the report noted that similar lows in the past were followed by a recovery in flows and markets. This suggests that much of the current negative sentiment may already be reflected in investor positions.
At the same time, domestic investors have continued to provide support. Strong and consistent domestic mutual fund inflows helped cushion market volatility during the period of foreign selling, the report said.
The report also pointed to a shift in valuations. India’s 12-month forward price-to-earnings ratio has returned to its 10-year average of around 20 times after trading at a sustained premium, while India’s valuation relative to emerging markets has also fallen back to its long-term average of around 1.4 times.
Beyond near-term market movements, the report also highlighted India’s longer-term manufacturing opportunity. Citing Morgan Stanley projections, it said manufacturing gross value added could rise from USD 519 billion in 2025 to USD 1.5 trillion by 2035 in the base case, while the bull case could take it to USD 2.05 trillion.
However, the report flagged risks to the outlook. India’s urban and rural consumer confidence has fallen to its lowest level since September 2023, which could weigh on discretionary consumption and corporate earnings.
It also noted that the Nasdaq-100’s underperformance against the S&P 500 in July was its widest monthly gap since the dotcom bubble, highlighting risks from concentration in mega-cap technology stocks.
Overall, the report said short-term market flows should be distinguished from India’s longer-term manufacturing trajectory, while investors may need to watch whether the early improvement in foreign flows develops into a sustained reversal. (ANI)
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