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Global Funds Bet Big on India Equities: Here's Why
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Global funds boosted purchases of India equities after the country's government started easing restrictions. Renewed risk-on trade in global equities has seen foreigners invest more than $4 billion in local Indian shares so far this quarter, the highest in Asia.
Not only this, India ETFs have been on a tear past month on stimulus optimism despite the coronavirus threat. First Trust India NIFTY 50 Equal Weight ETF (NFTY) and Columbia India Consumer ETF (INCO) were the top performers past month with about 17.5% and 14.4% gains, respectively, whileWisdomTree India ex-State-Owned Enterprises Fund (IXSE) gained the least (up 8.5%). This came against 10.9% gains in the S&P 500 (as of Jun 5, 2020).
Behind the Headline Numbers
Massive Stimulus Announcement
In mid-May, India’s prime minister Narendra Modi recently announced a larger-than-expected stimulus package, which includes 20 trillion rupees ($265 billion) worth an estimated 10% of gross domestic product, per Bloomberg.
The stimulus was aimed at countering the economic fallout from the coronavirus pandemic. Director of macro strategy at Oxford Economics had estimated the economic cost of the biggest lockdown of the world at “around 6% of annual GDP.” He had believed that the fiscal boost was timely for India as valuations were cheap both historically and relative to the Asia ex-Japan peer group.
Normal Monsoon & Government Support for Rural India
If this was not enough, forecasts for a normal monsoon and the return of migrant labors to their villages should contribute to further rally in Indian consumer stocks that are more tied to the rural areas. The rural economy makes up about 45% of gross domestic product, per Bloomberg. “The lockdown wasn’t as severe in rural India as it was in big cities. So, the farmers could harvest crops,” per an analyst.
Analysts at IDFC Securities Ltd., Centrum Broking Ltd. and Crisil Ltd. are betting big on consumer staples companies even as India is on its way to its first full-year economic contraction in more than four decades. Notably, the government’s 1.5 trillion rupees ($20 billion) package to help farmers and fishermen at the onset of monsoon is a big plus.
Monsoon showers are expected to be 100% of a long-term average, per the secretary at the Ministry of Earth Sciences. In the Indian market, excess or good rainfall is viewed as market-friendly. So, if the country receives plentiful rains along with a solid rural package, the market will have more room to run.
Investors should note that if a heavy monsoon benefits rural areas, it will give a leeway to the Reserve Bank of India (RBI) to slash interest rates in the coming days. This is because prospects of good monsoon may keep food inflation low. This can give India Investing a boost.
Laggards to Participate in Catch-Up Trade
Moreover, underperformers amid lockdowns are likely to catch up with their stronger peers, per an analyst, as the economy opens up. Hotels, restaurants and shopping malls are now allowed to operate after more than two months of lockdown.
Stock Picks
Investors can bet on Zacks Rank #3 (Hold) Indian bank HDFC Bank Limited (HDB - Free Report) and software services company Wipro Limited (WIT - Free Report) . Automotive company Tata Motors Ltd may also be a good bet. These stocks are up 18.1%, 10.6% and 35.4% in the past month (as of Jun 5, 2020) versus 11% gains in the S&P 500.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
Image: Bigstock
Global Funds Bet Big on India Equities: Here's Why
Global funds boosted purchases of India equities after the country's government started easing restrictions. Renewed risk-on trade in global equities has seen foreigners invest more than $4 billion in local Indian shares so far this quarter, the highest in Asia.
Not only this, India ETFs have been on a tear past month on stimulus optimism despite the coronavirus threat. First Trust India NIFTY 50 Equal Weight ETF (NFTY) and Columbia India Consumer ETF (INCO) were the top performers past month with about 17.5% and 14.4% gains, respectively, whileWisdomTree India ex-State-Owned Enterprises Fund (IXSE) gained the least (up 8.5%). This came against 10.9% gains in the S&P 500 (as of Jun 5, 2020).
Behind the Headline Numbers
Massive Stimulus Announcement
In mid-May, India’s prime minister Narendra Modi recently announced a larger-than-expected stimulus package, which includes 20 trillion rupees ($265 billion) worth an estimated 10% of gross domestic product, per Bloomberg.
The stimulus was aimed at countering the economic fallout from the coronavirus pandemic. Director of macro strategy at Oxford Economics had estimated the economic cost of the biggest lockdown of the world at “around 6% of annual GDP.” He had believed that the fiscal boost was timely for India as valuations were cheap both historically and relative to the Asia ex-Japan peer group.
Normal Monsoon & Government Support for Rural India
If this was not enough, forecasts for a normal monsoon and the return of migrant labors to their villages should contribute to further rally in Indian consumer stocks that are more tied to the rural areas. The rural economy makes up about 45% of gross domestic product, per Bloomberg. “The lockdown wasn’t as severe in rural India as it was in big cities. So, the farmers could harvest crops,” per an analyst.
Analysts at IDFC Securities Ltd., Centrum Broking Ltd. and Crisil Ltd. are betting big on consumer staples companies even as India is on its way to its first full-year economic contraction in more than four decades. Notably, the government’s 1.5 trillion rupees ($20 billion) package to help farmers and fishermen at the onset of monsoon is a big plus.
Monsoon showers are expected to be 100% of a long-term average, per the secretary at the Ministry of Earth Sciences. In the Indian market, excess or good rainfall is viewed as market-friendly. So, if the country receives plentiful rains along with a solid rural package, the market will have more room to run.
Investors should note that if a heavy monsoon benefits rural areas, it will give a leeway to the Reserve Bank of India (RBI) to slash interest rates in the coming days. This is because prospects of good monsoon may keep food inflation low. This can give India Investing a boost.
Laggards to Participate in Catch-Up Trade
Moreover, underperformers amid lockdowns are likely to catch up with their stronger peers, per an analyst, as the economy opens up. Hotels, restaurants and shopping malls are now allowed to operate after more than two months of lockdown.
Stock Picks
Investors can bet on Zacks Rank #3 (Hold) Indian bank HDFC Bank Limited (HDB - Free Report) and software services company Wipro Limited (WIT - Free Report) . Automotive company Tata Motors Ltd may also be a good bet. These stocks are up 18.1%, 10.6% and 35.4% in the past month (as of Jun 5, 2020) versus 11% gains in the S&P 500.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>