Foreign funds invest in the Indian financial sector
2022.12.06 02:58
Foreign funds invest in the Indian financial sector
Budrigannews.com – The prospects of a new credit cycle that could boost the stocks of the country’s largest lenders are enticed foreign investors to invest in Indian financial firms.
BNP Paribas (OTC:) reports that Indian shares are trading at a record-high valuation premium to Asian counterparts. notwithstanding, financials have emerged as a bright spot for overseas investors due to their relative affordability in light of their solid fundamentals.
According to data released this week by the National Securities Depository Ltd., the optimism is reflected in inflows, with foreign investors purchasing Indian financial stocks for a total of $1.74 billion in November.
That amounts to more than a third of the total monthly net inflows of $4.44 billion.
Flows into Indian financial stocks on a monthly basis thus far this year Indian financial stocks are trading above their historical average, but investors may not be comparing them to that standard.
Rob Brewis, a fund manager at Aubrey Capital Management in the United Kingdom, stated, “As a foreign investor, when you compare valuations across India, financials look more reasonably valued than some of the other sectors.”
Paying twofold digit products for shopper banks like HDFC Bank Ltd or ICICI Bank Ltd “is considerably more attractive,” said Brewis, as the potential for loaning development in India “is presumably better compared to elsewhere in developing business sectors.”
Reuters spoke with six fund managers who expressed optimism regarding a fresh capex cycle in India, which would be fueled by the government’s investments in infrastructure.
Manishi Raychaudhuri, head of equity research, Asia Pacific at BNP Paribas, wrote in a note that this growth cycle coincides with banks boasting the cleanest balance sheets in five to six years and average corporate leverage at a decade low.
Corporate earnings growth is anticipated to be among the strongest in Asia, and India is said to have one of the fastest-growing economies in the world. Because of this, both domestic and international investors have poured money into the domestic equity markets, which reached record highs last week.
According to Sukumar Rajah, director of portfolio management at Franklin Templeton EM Equity, private banks are well-positioned to continue gaining market share due to the improved macro outlook and ongoing investments made by financial institutions, particularly larger private sector banks, to enhance their franchise and process capabilities.
“We still see some scope for further re-rating in select names, even after the recent rally.”
Even though financial stocks are trading above their two-year average price-to-book valuation, optimism persists.
Indian stocks have always been valued fairly high to reflect their potential for growth; however, this year’s disparity with peers in emerging markets has grown as a result of a significant sell-off in other nations.
Stocks in China, South Korea, and Taiwan have fallen between 12% and 19% this year, whereas India’s benchmark stock index has risen 7.3% so far this year.
Sat Duhra, Asia equities portfolio manager at Janus Henderson Investors, stated, “It’s difficult to see India continuing this level of valuation premium over other markets” in the face of rising external risks.
Given that India has benefited from China’s falling share in emerging market indexes, Dhura stated that a sustained rebound in China as a result of relaxations in its zero-COVID policy posed a significant risk.
