Photographer: Dhiraj Singh/Bloomberg

Wall of Money Chasing India Stocks Shows Investor Euphoria Alive

As Indian stock markets breach record highs, investor appetite for risk remains unabated.

Investors plowed 160 billion rupees ($2.5 billion) into the funds in October, a 19th straight month of inflows, data from the Association of Mutual Funds in India show. The 964 billion rupees rupees received by equity funds this fiscal year, which started in April, is more than triple from a year earlier.

Retail investors have piled into financial assets with gusto after Prime Minister Narendra Modi moved to ban high-value currency last November, 2 1/2 years after taking office. The clampdown took the sheen off property and gold, and caused deposit rates to drop as the move left banks flushed with liquidity. The wall of local money has made Indian stocks the most expensive in Asia when measured by price to earnings.

“Inflows into equity funds began after the new government took the reins and accelerated after the cash ban as the crackdown turned investors away from gold and land,” Hiren Ved, chief investment officer at Mumbai-based Alchemy Investment Management Ltd., said by phone. “Money still keeps running away from deposits to equities.”

Mutual funds have plowed a record $14.7 billion into stocks this year, more than double the inflow from overseas. The S&P BSE Sensex is up 34 percent in dollar terms since Jan. 1, and is vying with South Korea’s benchmark for the top spot among Asia’s major markets.

The shift toward financial assets will gather pace, according to Morgan Stanley. India’s total financial savings are at 9 percent of the economy, compared with a peak of 15 percent eight years ago, and the government’s push for pension funds to invest in stocks will drive flows higher, the firm said in September.

“One may see a month or two where flows may turn marginally negative or are low, but I don’t see that as a long-term trend,” Alchemy’s Ved said.

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