Foreign investors are stepping up their exposure to Indian financial assets, betting that the world’s fastest-expanding major economy has the potential to provide juicy returns. With stock prices hovering near 11-month highs the market is relatively expensive, but this has had no impact on the inflow.

Data from the National Stock Exchange, the country’s biggest bourse, shows that foreign portfolio as well overseas institutional investors bought stocks worth nearly Rs 81 billion so far in July, marking a fifth straight month of net purchases. The buying is picking up steam, with the July inflow already much more than the total for the preceding two months.

“Everyone’s looking at emerging markets for better returns,” said equity strategist Sunil Shah. “India is a favoured destination because people see stronger growth in the second half of the year on the back of good monsoon.”

The top-30 Sensex and the 50-share Nifty were marginally down for the week as the market paused for breath after a rally to 11-month highs.

David Mann, chief economist for Asia at Standard Chartered Bank, says people are more comfortable with the idea of putting money to work around emerging markets because of their stronger fundamentals and the subdued growth prospects for the euro area.

“I would say a growth rate that is the envy of many other countries around the world is in India but we are seeing a similar story also for example Indonesia and indeed around the Asean region where people are little bit more focused on the fact that there is more resilience to even a soft global growth environment,” he told ET Now television channel.

Fitch Ratings upgraded its growth projection for India, to 7.7 per cent in the current financial year that started on April 1 and to 7.9 per cent in the next year. The $2 trillion Indian economy, Asia’s third largest after China and Japan, expanded 7.6 per cent in 2015-16.

“At the same time, weak private investment indicates that the economy is still not firing on all cylinders,” it said.

Mixed results

“India has settled into a comfortable stride. Growth looks impressive, even if that’s not always matched by feelings on the ground,” Pranjul Bhandari, chief economist for India at HSBC, said in a report.

“Luckily, the world’s economic travails have relatively little effect on what transpires locally. Faster reforms would help.”

Quarterly results have been a mixed bag so far, but smokestack industries are showing signs of a rebound.

UltraTech Cement, the country’s biggest cement producer, reported a 29 per cent rise in June quarter earnings and forecast robust growth in the current year. “Cement demand is expected to grow around seven per cent, given the government’s focus on infrastructure development, housing, smart cities, roads, others,” the company said in a statement.

Ashok Leyland, the No. 2 truck maker in India and controlled by the billionaire Hindujas, posted a twofold jump in quarterly profit, riding on robust sales volumes. “We recorded a domestic volume growth of 18.5 per cent as against the industry growth of 14.5 per cent,” Managing Director Vinod K Dasari said.

Power and automation technology company ABB India said its quarterly profit grew 35 per cent, but Wipro, the third largest Indian software services company, reported a 6.4 per cent drop in earnings and warned of sluggish revenue growth due to the uncertainty caused by Britain’s decision to quit the European Union.

Brexit “could delay some discretionary spend and create some slowdown in the European financial services sector”, Abidali Neemuchwala, Wipro’s chief executive, told a news conference.

Mandatory provisioning for sticky loans is taking the shine of bank results. Axis Bank, the No. 3 private-sector lender, said its June quarter profit fell 21 per cent as bad loans climbed by Rs. 36.38 billion. Its gross bad loans now stand at Rs. 95.53 billion, or just over 2.5 per cent of its total loans, compared with 1.7 per cent at end-March.

“We are not unduly perturbed,” finance chief Jairam Sridharan told a conference call, adding that the rise in bad loans was in line with the bank’s guidance.

HDFC Bank, the No. 2 private-sector lender and India’s most valuable bank with market capitalisation of about $46 billion, said its net profit grew by a fifth in April-June and a modest rise in bad loans was not a cause of alarm.

“We’re still very comfortable,” Managing Director Paresh Sukthankar said. Gross bad loans as a percentage of total loans rose to 1.04 per cent from 0.94 per cent at end-March.

Bonds fancied

Large foreign funds are ploughing cash into Indian debt, punting the central bank would cut interest rates under pressure from New Delhi. They have bought bonds worth a net Rs. 69.17 billion this month after outflows in May and June, driving sovereign yields to their lowest in three years.

Bountiful rains after a slow start to the annual monsoon season have raised the outlook for farm production, a crucial factor that should put a lid on food inflation and enable a looser monetary policy. The central bank is scheduled to review interest rates on August 9 and economists are divided on the outcome.

“A good monsoon should douse agflation,” Indranil Sen Gupta, economist at Bank of America-Merrill Lynch, wrote in a report. He expects the Reserve Bank of India (RBI) to lower the repo rate by 25 basis points to 6.25 per cent in August.

“We have cut our March CPI inflation forecast to 5.1 per cent from 5.7 per cent, in line with the RBI’s 5 per cent target, with rains likely to pull down pulses prices,” Gupta said. “We expect pulses prices to ease by 20 per cent this year.”

It would be Governor Raghuram Rajan’s last monetary policy before he demits office in early September, and many economists believe that he may not cut the rate as inflation has picked up due to higher food and fuel prices.

IPOs queue up

With foreign appetite for Indian stocks and bonds on the rise, both government and private-sector companies are looking to tap the capital market in a big way.

Some 47 initial public offerings (IPOs) have hit the market this year, raising $1.5 billion or more than double the amount during the same period last year. More are in the pipeline, including by Vodafone Plc which is planning to list its Indian unit. The sale by the British telecoms company could fetch a record $3 billion.

Others in the queue include ICICI Prudential Life Insurance Company, a joint venture between ICICI Bank which owns 68 per cent and UK’s Prudential Plc with nearly 26 per cent. The remainder is held by Wipro Chairman Azim Premji’s private equity firm PremjiInvest and Singapore state investor Temasek. The offering could raise between Rs. 50 billion and Rs. 60 billion.

The Indian government is looking to sell 15 per cent holding in state-run National Buildings Construction Corp Ltd and expects to raise about Rs 17 billion. New Delhi has budgeted to raise Rs 565 billion through stake sales in government companies during 2016-17 financial year that ends next March.

 — The writer is a journalist based in India