India Farm Stocks Rally, Mutual Funds See Record $4.2B Inflow

Farm Stocks Surge as Modi Approves 200-Billion Rupee Handout; Equity Mutual Funds See Record 347 Billion Rupee Inflows

By Athena Xu

6/10, 23:21 EDT

Key Takeaway

  • Nirmala Sitharaman's reappointment as finance minister boosts market sentiment, signaling policy continuity and pro-growth agenda.
  • Fertilizer stocks rally following Modi's approval of a 200-billion rupee cash handout to farmers, anticipating further benefits.
  • Record inflows into Indian equity mutual funds in May at 347 billion rupees ($4.2 billion), driven by strong retail investor confidence.

Policy Continuity Boosts Market Sentiment

The reappointment of Nirmala Sitharaman as finance minister has been well-received by the market, ensuring policy continuity. This move is seen as a positive signal for investors, as it suggests that the Modi administration will continue its pro-growth agenda. Foreign investors have shown renewed interest, picking up shares over the past two sessions. The retention of key ministers from Modi's previous administration has been praised by brokerages such as Goldman Sachs and Nomura, who appreciate the stability and focus on growth.

Farmer Handout Sparks Fertilizer Stock Rally

Prime Minister Modi's approval of a 200-billion rupee direct cash handout to farmers has shifted investor focus to companies linked to the agricultural sector. Fertilizer stocks saw significant gains, driven by favorable valuations and the anticipation of further benefits in the upcoming budget. This move is seen as a strategic effort to support farmers ahead of key state elections later this year. "Fertilizer makers are set to remain a tactical favorite," noted equities analyst Chiranjivi Chakraborty.

Record Inflows into Equity Mutual Funds

Inflows into Indian equity mutual funds hit a record high last month, with retail investors showing confidence despite election-related market volatility. Mutual funds received 347 billion rupees ($4.2 billion) in May, marking the 39th consecutive month of inflows. Systematic investment plans (SIPs) emerged as the most popular product, contributing nearly $2.5 billion in net flows. "While recent data has shown a dip in household savings in India, systematic investment plans have continued to pick up," said AMFI Chief Executive Venkat Chalasani. Equity funds now make up 43% of the industry's total assets, a significant increase from less than 30% in 2019.