Shift from China? Unprecedented foreign flows entering India for 2 weeks

$2.4bn have got allocated to India dedicated funds in just 2 weeks, which is the fastest momentum seen in history.

Indian stock markets are experiencing a record surge in foreign investment, particularly from the United States. This follows the recent election results, which appear to have instilled confidence in foreign investors.

" A lot of funds were sitting on the side lines for getting clarity on election outcome. We are seeing a crowded move to deploy into India since the past 2 weeks," said Sunil Jain of Elara Capital.

Over the past two weeks, a staggering $2.4 billion has flowed into India-dedicated investment funds. This is the fastest pace of investment ever recorded. The US is the biggest source of this new investment, contributing $700 million.

"Largest inflows were from US investors ($700mn) followed by Ireland ($447mn) and Japan ($433mn). Interestingly, we also saw $130mn inflows from Korea. All India inflows remain in Large cap funds with no revival of flows into Mid and Small cap funds yet," noted Jain.

Money moving out of China?
 

Foreign investors are pulling money out of China at an increased rate. In the past three weeks, China has seen a net outflow of $2.3 billion from foreign investors.

"The shift of foreign funds from China into India accelerated further over the past 3-weeks. China funds saw FII outflow of $2.3bn in the past 3-weeks. Importantly, after a long time, Japan flows also turned negative over the past 3 weeks with outflow of $753mn. Foreign outflows also accelerated from Taiwan and Brazil. Most of this seems to have moved into India, " noted the report from Elara Capital.

 The foreign money entering India is primarily targeting large, established companies. Investment in smaller and medium-sized companies hasn't picked up yet. Globally too, the trend is towards investing in large, established companies and riskier assets like commodities.

Jain believes a fear of missing out (FOMO) is driving the rapid shift of funds into India. While India is seeing inflows, Mexico is the only other emerging market experiencing similar growth.