Foreign investors are showing a renewed interest in Indian domestic equities, with a positive long-term market outlook, as per a recent report. Despite concerns about the rupee’s weakness deterring foreign portfolio investors (FPIs), a return is anticipated once the currency stabilizes for an extended period. Emkay Global Financial Services notes that while the short-term scenario may be uncertain, the long-term prospects for domestic flows into equities remain strong.
The report highlights that low nominal interest rates and changes in tax benefits for debt mutual funds have made fixed income less attractive for long-term savers. Barring a significant and prolonged market correction, sustained domestic flows into equities are expected to continue. Household savings’ allocation to equities has seen a consolidation over the past year, following a surge from 17% to 30% over the previous nine years.
Despite a recent market correction, the share of equities in household savings is expected to rise to 45% over the next decade, with month-to-month dynamics playing a crucial role. This shift is deemed vital for India’s market stability, especially as domestic institutional investors (DIIs) already hold a higher ownership compared to FPIs, acting as a buffer against market volatility. Analysis of FPI and DII portfolios indicates a significant FPI preference for large-cap stocks, particularly in the financial sector.
Moreover, gold’s share in household savings has increased by 855 basis points in the last year, reaching 45.6%, primarily driven by monthly gains. However, the report suggests that this rise in gold holdings is unlikely to have a substantial impact on consumption or incremental equity flows, as historical data does not show a significant correlation between gold prices and equity investments.
