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(Bloomberg) — India is shaping up to be a destination for investors seeking a relative shelter from financial volatility linked to the US election.
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A steady influx of foreign capital has positioned the nation’s bonds among top performers in developing markets this year, while the country’s stock market hit a record high last month, buoyed by robust domestic liquidity. India’s appeal is driven by a blend of structural factors: stable political ties with both the US and Russia, capital controls that curb hot money flows, and a currency that’s less impacted by big dollar moves than emerging market peers.
India’s divergence from global markets was evident last week when its sovereign bonds remained relatively steady despite a global selloff in US Treasuries. The nation has become a key emerging market bet for abrdn plc., particularly ahead of the US presidential election on Nov. 5, as hedge funds brace for a pickup in global volatility.
“India’s local bond market is relatively insulated from the volatility of global markets, remaining peaceful amidst the storm,” said Edward Ng, a bond fund manager at Nikko Asset Management Co. “Given the market’s low volatility, we remain comfortable staying invested in Indian bonds,” which may outperform in a strong-dollar environment, he said.
A key pillar of India’s resilience is its currency — once one of Asia’s most volatile. For much of 2024, the rupee has been stuck between 82.8 and 84.1 per dollar due to Reserve Bank of India’s interventions.
Data compiled by Bloomberg show that the currency has only shaved 1 percentage point off the returns on Indian bonds this year, less than half the rate of currency-related losses on emerging market local-currency bonds overall.
The rupee offers “minimal” volatility, Edwin Gutierrez, head of EM sovereign debt at abrdn, said in an interview. “In this world of uncertainty it ain’t a bad place to be.”
To be sure, India isn’t a hotspot for global equity investors right now. Signs of a slowdown in the country’s robust economic growth and a rebound in Chinese stocks have led to outflows of $8.8 billion from local shares in October, set for a record. While domestic investors’ purchases have evened out foreign outflows, the stock market is still on track for its worst month since March 2020.