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 India’s macro backdrop has improved as falling oil prices and a June foreign exchange package have eased financial conditions and prompted inflows, a report said on Wednesday.

Foreign investors signalled growing confidence, with $6.4 billion of bond inflows since early June and equities flows turning slightly positive in the past fortnight, the report from HSBC Global Investment Research.

The firm forecasted that a balance of payment surplus and improved sentiment could enable the INR to outperform a number of other Asian currencies.

“Meanwhile, a steadier INR, better liquidity, lower oil, and stronger nominal GDP growth should be supportive for equities, though FII preference for the AI theme may cap inflows, even as sector rotation continues,” it said, adding that the firm remains “cautiously constructive on Indian markets.”

The firm said the June FX package  which includes deposit incentives for overseas Indians, cheaper FX swaps for public sector undertakings and banks, tax concessions for overseas bond investors and a wider universe of investible bonds  has loosened domestic financial conditions.

The move also helped yields decline across instruments even before inflows driven by the package gathered pace, the report added.

"Falling oil prices and India's supportive FX package have improved the market outlook from risk-off towards gentle risk-on. Compared to 2013, FX and equities seem undervalued per our multi-asset model, and rates are benefiting from structural improvements," the report said.

"We remain broadly constructive across asset classes, though much will depend on actual inflows and RBI's liquidity or FX action," it added.

The research firm had recently raised its FY27 GDP forecast to 6.3 per cent from 6 per cent.

Government bonds look more "overvalued" compared to 2013, but structural enhancements in 2026 (removal of Foreign Institutional Investor tax and a broader investible bond set) could improve prospects for inclusion in global bond indices, supporting the asset class, the report said.

In dollar credit, easier onshore conditions via improved domestic liquidity  could reduce pressure on offshore USD corporate issuances by making local funding more competitive, it added.