Indian shares, bonds seen rallying in 2024 on continued foreign inflows

Traders have said that the Indian rupee will continue trading sideways as RBI could absorb bulk of the inflows. The rupee declined for a sixth year in a row in 2023, with its volatility hitting near 20-year lows on the back of persistent central bank intervention.

Mumbai: The bull-run in Indian financial markets is likely to continue in 2024 as foreign interest remains robust, with heavy buying expected in both equity and debt markets, several analysts and industry watchers said.

India's inclusion in the JPMorgan emerging market debt index will boost investments in government debt, while attractive valuations will keep funds flowing into the share market.

"I expect shares to see inflows of around Rs 2,49,570 crore ($30 billion) in 2024, with front-loading in the January-March quarter," Andrew Holland, CEO of Avendus Capital Public Markets Alternate Strategies in Mumbai, said.

"For 2024, earnings growth would be around 15 per cent, and the index would also grow around 15 per cent from where it ends in December."

Overseas investors bought Indian shares worth net Rs 1,72,203 crore ($20.7 billion) in 2023 until December 28, the highest since 2020, while their net debt purchases stood at $8 billion, according to data from National Securities Depository.

India's benchmark BSE Sensex rose 19 per cent in 2023, while the wider Nifty 50 gained 20 per cent, with both indexes hitting record highs in late December, because of upbeat economic data and companies' performance, traders said.

The Federal Reserve's pivot towards rate cuts has also buoyed emerging markets, they added.

Banks, information technology firms and metals will lead India's stock rally, with some push from defense and renewables, Andrew Holland said.

Sreekanth Nadella, MD and CEO at financial management firm KFintech expects foreign inflows in healthcare to trigger outperformance in that sector.

Financials, which have been lagging, could also attract higher flows, Nadella added.

Meanwhile, India's bonds will be boosted as JPMorgan adds some government securities to its emerging market index from June.

"We are positive on India into the next year as foreign inflows will pick up on the back of bond index inclusion," Jean-Charles Sambor, Head Emerging Markets, Fixed Income at BNP Paribas Asset Management, said.

India's 10-year benchmark bond yield was down 15 basis points in 2023, following a 143-basis-points rise in the previous two years.

Though the Reserve Bank of India (RBI) is unlikely to start cutting rates until April-June, investors expect bond yields to fall on rate cut hopes.

The 10-year bond yield could fall to 7 per cent over the next six months, Sampath Reddy, Chief Investment Officer at Bajaj Allianz Life Insurance, said.

The Indian rupee will continue trading sideways as the RBI could absorb a bulk of the inflows, traders said.

The rupee declined for a sixth year in a row in 2023, with its volatility hitting near 20-year lows on the back of persistent central bank intervention, they added.