Photographer: Dhiraj Singh/Bloomberg

Foreigners Warm Up to Indian Stocks While Locals Stay Bearish

  • Investors hope India will junk tax proposals in budget: TCG
  • Foreign traders are buying the nation’s shares again

After a four-month selloff, global investors are getting excited about Indian equities again, even as local traders remain skeptical about the recent rebound.

Foreigners are returning to the market as Finance Minister Arun Jaitley readies to unveil the nation’s annual budget on Feb. 1. They’re back to buying stocks, after selling them for 21 straight days, and they’ve raised their net-long futures positions even as locals have become the most net-short since August 2015. With the government suspending on Tuesday its proposal to tax India-focused foreign funds, the market may attract more bulls from outside the country.

“Foreign funds are hoping that the government will shelve its poorly thought-through plans to tax overseas funds in the federal budget,” said Chakri Lokapriya, the Mumbai-based managing director of TCG Advisory Services Ltd., which manages about $3 billion of assets. “The sharp fall in the markets post demonetization can slowly subside if the government introduces tax cuts and announces pro-growth policies in the coming budget.”

The Nifty has climbed 6.7 percent since Dec. 26, when it hit a bottom on worries the government’s recall of 15 trillion rupees ($219 billion) of currency notes would hurt economic growth and corporate earnings. Now the concerns are easing on optimism the impact won’t be as severe as feared, according to Sushant Kumar, a fund manager at Mumbai-based RAAY Global Investments

  • Foreign investors bought $77 million of Indian shares in the two days through Wednesday, the last day for which the data are available. The selling this month has eased to about $447 million, after almost $3.9 billion of outflows in November and December.
  • They’re net-long almost 99,000 futures on the Nifty and Nifty Bank measure, while domestic traders are net short almost 23,000, according to data compiled by Bloomberg based on exchange figures.
  • Institutions from outside the country have a significant influence in derivatives trading in India, holding a long or a short position in 36 percent of the total number of contracts, according to stock-exchange data.