BofA Global Research projects sustained strong foreign investment into Indian equities over the coming months. This optimistic forecast, led by BofA's head of India research Amish Shah, is attributed to a confluence of improving corporate fundamentals, attractive valuations, and an increasingly favorable market environment.
The sentiment shift is already evident. Foreign funds acquired a net $6 billion worth of Indian shares between November 1 and November 9, putting them on track for their strongest monthly net purchases since 2023. Concurrently, the benchmark Nifty 50 has rebounded significantly, climbing nearly 14% since reaching an 18-month low on October 8.
BofA's Shift to a Positive Outlook
BofA's more constructive stance on Indian equities began in mid-September, when Shah and his team adopted a positive view on the NSE Nifty 50. This marked a significant change after nearly two years of maintaining a cautious outlook, with the brokerage assessing that much of the risk facing the Indian market had already been factored into stock valuations.
Factors Driving Renewed Investor Confidence
According to Shah, several key developments have contributed to the improved outlook for Indian equities:
- Growing questions surrounding the global artificial intelligence (AI) investment theme, potentially leading to fund reallocation.
- Easing geopolitical tensions between the United States and Iran.
- A notable decline in crude oil prices, which is particularly beneficial for India's external balances and inflation prospects.
These combined factors have prompted investors to reassess risks within the Indian market. Shah remarked that while the underlying conditions for a recovery in investor confidence were present, a specific trigger was needed to foster greater optimism.
With overseas investors actively reducing their underweight positions and long-only funds showing renewed interest, foreign investment flows are poised to remain a crucial driver for the domestic equity market in the near term.