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A rally for Indian equities has outstripped gains in the rest of Asia and put the country’s market on course for its strongest performance since 2017, as foreign buying returned on signs of economic recovery following rampant Covid-19 outbreaks this year.
The BSE Sensex touched an intraday high of almost 58,516 on Monday, bringing the benchmark more than one-fifth higher for the year to date and reflecting a rise of more than a quarter from a low in April, when a second wave of infections pummelled Indian stocks.
The recent gains for the country’s equity market have made it the region’s top performer this year and put Indian shares on track for their best yearly gain in four years.
The rally also underscored the divergent trajectories of shares in the region’s two largest economies. China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks has fallen 5 per cent this year, while Hong Kong’s Hang Seng Tech index has dropped almost 20 per cent amid Beijing’s rolling crackdown on the sector.
“The biggest change is that foreigners have turned net buyers in to India,” said Vasudev Jagannath, an analyst at IIFL Securities in Mumbai.
Data published by the Securities and Exchange Board of India showed that foreign investors began pouring money back into India’s market on August 31, snapping a vicious selling streak as buy orders piled up for some of the country’s largest stocks. Among those to benefit was Reliance Industries, which is up more than 8 per cent this month.
Jagannath said the foreign buying had become a crucial driver for India’s market and was “much more broad-based and much more large-cap oriented” than during a furtive rally last month, which had focused on small and midsized stocks.
Economists have grown more sanguine on India’s prospects in recent weeks even in the face of concerns over potential export weakness. Despite a current account deficit projected this year, analysts at Nomura have forecast a cyclical growth recovery in the months ahead thanks to “the combination of an accelerating pace of vaccinations, continued economic normalisation, steady global growth, easy financial conditions and fiscal activism”.
The return of equity inflows late last month was enough to tip offshore investors into net buyers by about $710m for August, official figures showed. Flows into India’s bond market also turned positive for the first time this year, totalling $1.7bn, according to Bank of America research.
Analysts said the bond buying was driven in part by the rising strength of India’s rupee. The currency gained 1.6 per cent against the dollar over the past week to trade at about Rs73 per dollar amid renewed optimism about the country’s progress on Covid vaccinations.
“Hospitals are not filling up as quickly and cases remain high in places but vaccination has started yielding benefits,” said Jagganath. “It’s not going to go away, but you learn to live with it.”
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