The NSE Nifty 50 Index has surged more than 14% from a mid-June low as overseas investors turned buyers after months of withdrawals. That drove the benchmark from levels described by traders as oversold to strongly overbought territory in just 39 sessions, the quickest pace since 2003.
“The current turnaround in the stance of foreign investors with regard to India is yet to be confirmed,” said Kunal Valia, chief investment officer for listed investments at Waterfield Advisors Pvt. He said the country faces both fiscal and current account deficits, “worrisome macro” for foreign traders.
The shift from record outflows from Indian stocks to net buying by overseas investors came amid a weakening of the dollar and faster-than-expected cooling of commodity prices. Commodities including oil and base metals have dropped 10%-20% from peak levels in June, providing major relief for net importers like India.
“We didn’t anticipate global factors to improve so soon,” said Bank of America Corp. analyst Amish Shah. “Low positioning” and few investment options in other emerging markets led to the resumption of inflows from global investors, he said.
Like Waterfield’s Valia, Shah is skeptical about the sustainability of foreign buying. Risks include possible changes in China’s economic policy to focus on growth, which could lead to reacceleration in crude and other commodity prices, he said.
The Nifty 50 was down about 1% in midday trading Monday.