FPIs may be back on 'expected' win for BJP

The entire focus of the stock market is on the results of the upcoming Lok Sabha elections on June 4. There is a concern in the market that the BJP may not be able to cross the magical figure of 272 seats this time. Perhaps this is why foreign institutional investors, or FPIs, have been consistently selling in the stock market for the past two months. According to NSDL data until May 30, FPI selling in May increased nearly threefold compared to April, amounting to ₹24,464 crores. However, after the exit poll results indicated a clear win for BJP, the market has seen a jump of amost 3% on Monday.

However, after selling securities worth ₹10,949 crores in April, foreigners have bought securities worth ₹7,349 crores until May 30. But this is only because of inclusion in the government bond index like JP Morgan Government Bond Index. Indian bonds will be included in JPMorgan GBI from June 28. Based on the number of BJP seats, foreign brokerage house Nomura has issued a report based on the investment or selling figures by FPIs. What does this report say? Let’s understand.

According to Nomura, if the Bharatiya Janata Party led by PM Modi wins on the election, foreign institutional investors, or FPIs, could return to the Indian debt market on a large scale. According to brokerage houses, in this scenario, foreign investment in the debt market could be around $1-2 billion every week and this investment will continue until June 28 when Indian bonds will be included in JPMorgan GBI, i.e., JPMorgan Government Bond Index.

By March 21, 2025, Indian bonds will have a weightage of around 10% equal to China in the JPMorgan Government Bond Index. Due to this weightage, experts believe that around $30 billion of investment could come into the country in the financial year 2025. There is a possibility of an investment of notional value of $330 billion through more than 23 government bonds. Apart from JPMorgan’s index, entry could also be made into Bloomberg EM local currency government Index for domestic securities. 34 Indian securities could be included in this index. There is a possibility of entry into Bloomberg’s index by January 2025 with an initial weightage of 10%.

In this way, the Indian rupee could become the third largest currency after the Chinese renminbi and the South Korean won. Bank of Baroda believes that this could lead to an expectation of foreign investment of $40-45 billion through equity and debt.

On the contrary, Nomura has also speculated in the report about the situation if BJP loses. Brokerage houses believe that in such a situation, there could be an outflow of $30 billion from India within two weeks. If this happens, there will be a need for significant intervention by the Reserve Bank of India. After the sell-off in April, RBI has recently started increasing its forex reserves. In the coming weeks, Nomura believes that the liquidity of banks will depend on RBI’s strategy regarding forex and RBI’s policy will depend on the election results.

Overall, if BJP wins, which is in Nomura’s base case, in this situation, banks could be in surplus liquidity by July and there could be a possibility of large investments from foreign institutional investors.