Indian stocks and bonds are expected to rebound in 2024 due to continued foreign inflows

Several analysts and industry observers have said that the strength of Indian financial markets will continue in 2024 as overseas interest remains strong and heavy buying is expected in both the stock and bond markets.

India’s inclusion in the JPMorgan Emerging Markets Debt Index will increase investment in government debt, and attractive valuations will continue to attract funds into equity markets.

“In 2024, we expect approximately $30 billion of equity inflows through preemption in the January-March quarter,” said Andrew Holland, CEO of Avendus Capital Public Markets Alternate Strategies (Mumbai).

“Revenue growth will be around 15% in 2024, and the index will also be up around 15% from where it ended in December.”

Overseas investors bought a net $20.7 billion worth of Indian equities in the year to December 28, 2023, the highest since 2020, while net bond purchases reached $8 billion, according to data from the National Securities Depository.

India’s benchmark BSE Sensex is up 19% in 2023 and the Nifty 50 is up 20%, with both indices hitting record highs in late December on the back of upbeat economic data and corporate earnings, traders said.

They added that the Federal Reserve’s interest rate cuts have also had a positive impact on emerging markets. Andrew Holland said banks, information technology companies and metals will lead India’s equity rally, driven in part by defense and renewable energy.

Sreekanth Nadella, MD and CEO of financial management firm KFintech, expects foreign inflows in the healthcare sector to trigger outstanding performance in the sector.

Nadella added that a sluggish financial sector could also attract higher flows.

Meanwhile, Indian bonds are set to strengthen as JPMorgan adds some government bonds to its emerging markets index from June.

“We are positive for India next year as inclusion in bond indices will increase foreign inflows,” said Jean-Charles Sambor, head of emerging markets fixed income at BNP Paribas Asset Management.

India’s benchmark 10-year bond yield fell 15 basis points in 2023, after rising 143 basis points over the past two years.

Although the Reserve Bank of India (RBI) is unlikely to start cutting interest rates until April or June, investors expect bond yields to fall on expectations of a rate cut.

Sampath Reddy, chief investment officer at Bajaj Allianz Life Insurance, said 10-year bond yields could fall to 7% in the next six months.

The Indian rupee will continue to trade sideways as the RBI may absorb most of the inflows, traders said.

The rupee fell for the sixth consecutive year in 2023, with volatility reaching a two-decade low due to ongoing central bank intervention, they added.