“We are seeing a sharp reversal” in foreigners’ ownership of India midcaps, strategists including Amorita Goel and Sunil Koul wrote in a note Wednesday, citing their analysis of second quarter shareholding data.
Overseas investor holding in midcaps has increased by 175 basis points to 16% of their market capitalization this year, compared with a drop of 250 basis points over the last five years, they added.
Global money’s return to smaller and riskier Indian stocks shows their confidence in India’s stock market despite concerns on valuation premium. The smaller stocks are attracting overseas buyers even as they remain more expensive than the large ones.
The S&P BSE MidCap Index has risen more than 20% this year, surpassing a 7.4% gain in India’s equity benchmark. It is trading at 24 times on earnings-based valuation versus 19 times for the Sensex index, according to data compiled by Bloomberg.
India’s equity market has received about $15.5 billion in net foreign inflow this year, just about $1.5 billion shy of erasing last year’s record outflow, according to data compiled by Bloomberg. That support has helped drive the Sensex up 14% from a March low, versus little change in a gauge of emerging market shares due to a selloff in Chinese risk assets.
According to Goldman strategists, international investors favored India’s domestically oriented equities more than local investors, with their ownership expanding the greatest in consumer and cyclical sectors.
