Foreign investors return to Indian stocks on big ticket block trades

The block trades were well bought by overseas investors. They marked the highest monthly total in almost a year and a huge jump from only $220 million in April

Foreign investors are starting to head back into Indian stocks after a major exodus, attracted by $5.5 billion worth of big ticket block trades in May and lifting hopes of a revival in the nation's equities market.

The block trades were well bought by overseas investors, according to bankers. They marked the highest monthly total in almost a year and a huge jump from only $220 million in April.

"We actually saw interest coming in from a fairly diverse set of investors who were missing in action in the last six months," said Abhinav Bharti, head of JPMorgan's India equity capital market business.

"They had gone out of India, said India is just too expensive, we don't want to buy anything right now. I think we could start seeing them coming back." 

Block trades often precede a recovery in IPOs and May's robust offerings come amid a strong performance for Indian stocks.

The Nifty 50 index has climbed risen 6 per cent since early April when US President Donald Trump announced his sweeping tariffs which were then paused for 90 days, with India emerging as an investor safe haven due to better-than-feared duties.

Foreigners have since bought about $3 billion worth of Indian stocks in April and May combined, data shows.

That comes after they pulled nearly $29 billion out of Indian stocks between October and March which followed record highs for the country's benchmark indices in September.

Gary Tan, a portfolio manager at Allspring Global Investments in Singapore, said the recent inflows into India reflect a resurgence of interest in emerging market equities.

"We've selectively added to India on pullbacks but remain underweight," said Tan, citing high valuation in some sectors. Banking, telecommunications and diversified conglomerates were his most favoured sectors, he added.

The $5.5 billion in block trades in May, according to LSEG data, included the sale of a British American Tobacco $1.51 billion stake in ITC, according to a term sheet seen by Reuters showed.

IndiGo co-founder Rakesh Gangwal also offloaded a 5.7 per cent stake in the low-cost carrier through a block deal worth about $1.36 billion, while Singtel sold $1.5 billion of Bharti Airtel shares. Both the ITC and IndiGo trades were increased in size after strong demand from investors, bankers said.

It was the busiest May on record for block trades in the country, the data showed.

"We're seeing high-quality global long-only accounts coming in with conviction," said Sunil Khaitan, a managing director at Goldman Sachs in India.

"Some are still waiting for levels to normalise, but 90 per cent to 95 per cent of the foreign liquidity coming back into the market is from deeply embedded India investors, those who understand the market and have been waiting for the right window to reengage."

Citigroup's head of India ECM Arvind Vashistha said the country's better economic performance, tax cuts and interest rate reductions had helped sentiment towards India's equity markets improve.

"The economy is in good shape, valuations have become more reasonable, which is encouraging healthy market activity. Investors are telling us that these are the companies we find interesting and if there's a supplier, we'd love to buy it," he said.