India stocks set for biggest FII outflows in a year on election risks, China appeal
Indian stocks are set for the biggest monthly outflow in nearly a year as election uncertainties and high valuations prompt some funds to shift to cheaper alternatives like Chinese equities.
Global investors have pulled a net $3.5 billion from India’s stock markets so far in May, on course for the biggest withdrawal since June 2023, according to data compiled by Bloomberg.
The outflows signal concern that a less decisive performance by Prime Minister Narendra Modi may limit his ability to carry out crucial economic reforms. The uncertainty has dampened the appeal of expensive Indian equities, while cheaper Chinese stocks have started to look more attractive.
“The risks around this election have increased in India, whereas there are signs the downside in China may not be as bad as feared,” said Christine Phillpotts, a portfolio manager at Ariel Investments LLC in New York. “The valuation gap between the Indian and Chinese markets may have become too large for foreign investors to ignore.”
India concluded the fourth phase of voting in its marathon elections on Monday, with the weekslong polling to end on June 1. The votes will be counted on June 4.
Modi is still widely expected to secure a third successive five-year term with the leader having predicted that his Bharatiya Janata Party and its allies will win more than 400 of the 543 seats up for grabs in the lower house of parliament.
And some market participants say the budding rotation to Chinese stocks from India is likely to stall. Citigroup Inc. last week
