Foreign investors were already on the run from India’s stock markets even before President Trump declared economic war on India.
But the two main stock indexes in Mumbai, India’s financial capital, are up 10 percent over the past six months. And they have barely budged since Mr. Trump’s 50 percent tariffs on India took full effect in late August.
The reason: Indian investors keep pouring money into stocks as fast as foreigners are taking money out, providing a measure of relief for the country’s businesses and economy.
The emergence of India’s homegrown investors as this year’s unsung hero reflects the growing confidence of India’s middle class and the development of its domestic financial sector.
Foreign investment accounts for a far smaller chunk of the markets than it did 10 years ago, said Harsha Upadhyaya, a mutual fund manager at Kotak Mahindra Bank in Mumbai. Foreigners once owned 24 percent of stocks in India’s markets, but now hold barely 16 percent.
“The flows used to be dominated by foreign institutional investors, and that’s when their view mattered a lot,” Mr. Upadhyaya said.
Indian institutional investors — mainly mutual funds and insurers — now hold a greater proportion of the market. As a result, India’s individual investors no longer take cues from international money managers who are chasing optimal returns around the world. Many automate their deposits into Indian mutual funds and just buckle in for the ride.
One of the forces drawing foreign investment out of Indian stocks has been the stunning turnaround of Chinese stock markets. And Hong Kong’s main index has gained more than 21 percent since April.
For India, there are plenty of reasons to worry about the effects of the tariffs, half of which Mr. Trump described as punishment for India’s purchases of Russian oil. For the companies that export products to the United States, and the millions of workers they employ, the new tax on American imports is already devastating.
Another threat looming over the economy is the fate of India’s new role as an alternative to China for manufacturers. The tariffs leave India a less attractive venue for exporters, and the fissure in what everyone thought was a solid partnership between Washington and New Delhi makes India a shakier place to invest.
The risks are not lost on India’s government. It has signaled that it is ready to support exporters. This past week, the finance ministry simplified and reduced national tax rates, a move intended to spur consumer spending and make up for some of the losses.
Those kinds of bailouts can help keep India’s growing army of middle-class investors on the march.
The number of individual brokerage accounts has exploded since 2020. By this summer, there were 200 million, or one for every seven Indians. The room for growth is still immense.
Tathagata Banerjee fits the profile. A 51-year-old professor of English literature at the University of Calcutta, Mr. Banerjee started investing in mutual funds just before the Covid-19 pandemic. When India’s stock market dropped by nearly a quarter after the outbreak, he grew bolder. He said he followed a simple strategy.
“The only thing I know is ‘buy low and sell high.’ So during the nosedive, I saw an opportunity,” said Mr. Banerjee, a Milton scholar. He started buying stocks and has not stopped.
Within a year of the market’s hitting rock bottom, Mr. Banerjee’s savings had shot up by 40 percent. Since then, by investing with apps on his Android phone, he has made about 21 to 22 percent a year, he estimated.
Before he got into stocks, Mr. Banerjee kept most of his money in saving accounts and the rest in government-issued bonds that tracked the price of gold. His return on those was about 2 percent a year, with penalties if he withdrew within eight years.
Vaibhav Sanghavi, a fund manager at ASK Hedge Solutions in Mumbai, calls this larger trend the “financialization of India’s savings.” Money that used to be plowed into real estate or physical gold is now being put in the stock market.
“The markets are very, very resilient, purely because of the domestic investors,” Mr. Sanghavi said.
This gives an advantage to India’s publicly listed companies, most of which are insulated from the medium and small manufacturers whose exports to the United States are getting clobbered.
In the wake of the tariffs, Prime Minister Narendra Modi has called for Indians to rally around the flag and buy goods made in India. From the small investor’s point of view, sticking with Indian stocks is just common sense.
“My investments are not affected by any patriotic feelings, I just look out for myself,” Mr. Banerjee said. “The only patriotic decision I’ve made in the past few days is that I had ordered a pack of California almonds — and then I canceled the order.”
It would be difficult, though not impossible, for an investor like Mr. Banerjee to buy shares in foreign stock markets. And why would he? “We are a growing economy,” he said. “America is fully grown already.”
Alex Travelli is a correspondent based in New Delhi, writing about business and economic developments in India and the rest of South Asia.
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