India may see an overflow of $30-40 bn funds post June

The Indian market is in a wait-and-watch mode until the election results are announced on June 4. If a stable government is formed, experts expect a significant inflow of foreign currency, leading to a bull run in the stock market and lower bond yields

Another $30-40 billion is likely to enter into India, post June, after our bonds starts getting traded in JP Morgan Bond Index (in addition NRI remittances which already crossed $100 billion in addition to this the FDI of about $40-60 billion).

All these money will be used in infrastructure, building new businesses and yes some of it will find its way to the stock market. If that was not all, the government has already amended FEMA to allow all the Rs 147 billion held by Russians to invest in India in stocks, companies, bonds and provide loans through the approved mechanism. So, days in the market are anyways bullish as money inflow in FY25 and onwards is better than any year in the history of India.

Talking to Bizz Buzz, Anil Kumar Bhansali, Head of Treasury and Executive Director Finrex Treasury Advisors said, “With JPM govt bond index inclusion date nearing (June 28), we do expect inflows to the tune of $2 billion to $3 billion to come into Indian markets every month.”

There was a bit of front running in the months of January and February as market factored in cuts in US rates, but later on, as US inflation became sticky and moved higher, their 10 year move from 4 per cent to 4.70 per cent and investors again started shifting their investments to US which is considered safe as investment destination, he said.

We did have $125 billion as remittance from NRIs who seem to be more confident about Indian story than the foreigners, but FDI has fallen this year due to rise in US rates, uncertainty created due to Indian elections. Also FPIs have been buying Indian equities and debt on and off. The flows, therefore, have been very irregular, and we need to see in June whether flows will resume once the new government is formed.

Flows from Russian balances held in Vostro accounts will not bring any new flow in foreign currency but will surely help in taking equities higher and debt yields lower once invested there. Overall, market seems to be in a wait and watch mode till June 4, the results day, and will take a call for investments only once they see the new government and its majority in the elections.

Requesting anonymity, the treasury head of a bank said, “India is in a sweetspot. Both politically and economically the times ahead will be like the proverbial Goldilocks moment. While the funding required for infrastructure development will copiously be available, a rating upgrade will help a long way.” Equities and bond markets will undoubtedly benefit from the expected forex flows. Recent market related regulatory changes will be a shot in the arm, he added.