Despite the marginal decline at the opening, sentiment around Indian assets has improved sharply in recent weeks after crude oil prices dropped back to pre-Iran war levels and policymakers introduced measures to stabilise the currency.
The easing of two major concerns, oil prices and rupee volatility, has started drawing foreign investors back toward Indian markets.
India remains highly sensitive to swings in crude oil because it imports nearly 90% of its oil requirements. Earlier this year, rising geopolitical tensions in the West Asia pushed energy prices higher and intensified pressure on the rupee, which slid to a record low near 97 per dollar on May 20.
The weak currency hurt returns for foreign investors and added to concerns over expensive equity valuations, prompting many global funds to cut exposure to India. At the same time, investors shifted capital toward technology-driven Asian markets such as South Korea and Taiwan, which benefited from the global artificial intelligence boom.
Now, falling crude prices and improved currency stability are changing the outlook.
The rupee has rebounded to around 94.50 per dollar, making it one of Asia’s better-performing currencies in June. The Reserve Bank of India’s steps to encourage dollar inflows and contain volatility have also helped steady the market.
Global investors are beginning to respond. Data analysed by Elara Capital showed inflows into US-listed India-focused exchange-traded funds turned positive last week for the first time in over a month.
Fund managers say two major pressures on Indian markets have eased significantly.
“India is among the most oversold markets we track,” said Todd McClone, portfolio manager at William Blair Investment Management. He added that improving macro conditions and more reasonable valuations are strengthening the investment case for India.
Some global funds have already started increasing exposure.
M&G portfolio manager Vikas Pershad said the firm reduced its underweight position on India by adding to existing high-conviction investments while trimming allocations to South Korea and Taiwan.
Investors are also turning more constructive on Indian equities as market corrections create selective buying opportunities.
Still, analysts caution that stronger earnings growth will be critical for sustaining a broader market recovery. India’s corporate earnings growth has remained in single digits over the past two fiscal years, although analysts expect growth to accelerate into the mid-teens in the current and next fiscal year.
-With Reuters inputs
