As the Indian market eagerly awaits the announcement of election results on June 4, a potential period of significant economic activity looms on the horizon. Should a stable government be formed, financial experts anticipate a considerable influx of foreign capital, which could trigger a bullish run in the stock market and lower bond yields.
A notable $30-40 billion is projected to flow into India post-June, particularly as Indian bonds are set to be included in the JP Morgan Bond Index. This substantial addition will complement the already robust inflow from Non-Resident Indian (NRI) remittances, which have surpassed $100 billion, alongside Foreign Direct Investment (FDI) estimated between $40-60 billion.
These financial inflows are expected to be directed towards infrastructure projects, the establishment of new businesses, and the stock market. Additionally, a recent amendment to the Foreign Exchange Management Act (FEMA) by the government allows the Rs 147 billion held by Russians to be invested in Indian stocks, companies, bonds, and loans through approved mechanisms. This amendment further bolsters the positive market outlook, indicating that the fiscal year 2025 and beyond could witness unprecedented financial activity in India.
Speaking to Bizz Buzz, Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors, expressed optimism about the upcoming market dynamics. “With the JP Morgan government bond index inclusion date nearing on June 28, we expect inflows of $2 billion to $3 billion into Indian markets every month,” he stated.
Earlier in the year, there was some anticipatory market movement as investors expected US interest rate cuts. However, as US inflation remained persistently high, causing their 10-year bond yields to rise from 4% to 4.70%, investors redirected their capital towards the US, seen as a safer investment destination.
Despite these shifts, India received $125 billion in NRI remittances, indicating stronger confidence in the Indian economy from overseas Indians compared to foreign investors. Nonetheless, FDI has seen a decline this year, attributed to rising US rates and the uncertainty surrounding Indian elections. Foreign Portfolio Investors (FPIs) have shown intermittent interest in Indian equities and debt, resulting in irregular investment flows. The continuity of these flows will likely hinge on the stability of the new government post-election.
While funds from Russian Vostro accounts will not introduce new foreign currency inflows, their investment in equities and debt is expected to positively impact the markets. The overarching sentiment remains one of cautious optimism until the election results are announced.
A senior treasury official, who requested anonymity, highlighted India’s advantageous position. “India is in a sweet spot. Politically and economically, the future could be akin to the Goldilocks moment—just right. Ample funding for infrastructure development, combined with a potential rating upgrade, will significantly benefit equities and bond markets,” the official noted. Recent regulatory changes are also anticipated to provide a substantial boost to market confidence and investment inflows.
As the market stands at the cusp of potentially transformative economic developments, all eyes remain on the impending election results and the subsequent formation of the government.