“The results were even better than expected for the governing party of Indian Prime Minister Narendra Modi. The results also confirm the message sent by recent opinion polls which show a renewed rise in Modi’s popularity,” said Wood in his weekly note ‘Greed & Fear ‘.
The Indian equity market would have corrected much more year to date were it not for the domestic fund flows absorbing net foreign selling, said Jefferies.
“Net inflows into domestic equity mutual funds have totaled US$6.8 billion in the first two months of this year. While foreign investors have sold a record net US$14.9 billion worth of Indian equities so far this quarter,” said Wood.
Foreign Investors have been offloading Indian stocks since October 2021 when they last hit record highs. The outflows, triggered by worries on aggressive rate hike plan and liquidity withdrawal by the US Federal Reserve, got exacerbated by the Russia-Ukraine tensions. Moreover, Indian markets had a near vertical rally between March 2020 and October 2021, notwithstanding the impact of the Covid-19 pandemic.
In a recent note, ICICI Securities said the trailing 12-month selling by Foreign Portfolio Investors has eclipsed outflows seen during the global financial crisis.
“The ongoing FPI selling in Indian equities is turning out to be the highest selling spree since the global financial crisis of 2008 with trailing 12-month FPI cumulative selling of US$36 billion versus US$28 billion during the global financial crisis,” said ICICI Securities .
Wood said that the Indian stock market has to contend with a monetary tightening cycle which will be made worse by higher oil prices due to the Ukraine invasion.
The RBI failed to raise rates at its last policy meeting in February which in retrospect was a mistake and the Indian central bank will now probably have to raise the rate by at least 25 basis points at its next meeting on April 6-8, said Wood .
Jefferies India expects three to four 25-basis points rate hikes over the next one year.
Hong Kong-based Wood said that the strong rebound in non-oil and gas imports shows the economic recovery post the delta wave of Covid-19.