New Delhi: Investor sentiments towards India is improving due to falling commodity prices, expansionary global liquidity conditions and prospects of a good monsoon, says a report.
However, political uncertainty and progress on implementation of reforms remain a cause of concern, Citigroup said in a report.
The consensus view of about 40 institutional investors in Europe across Indian asset classes - equities, rates and forex - was "positive", the report added.
Investor feedback confirms that sentiment towards India is improving, with the key driver being comfort on the Current Account Deficit; falling inflation levels and on expectation that fiscal targets are more likely to be met, which bodes well for India's sovereign rating outlook, Citigroup said.
"The delta change on the outlook for all asset classes is positive but political/policy risks and possibility of a re-bound in gold remain concerns," Citigroup said.
The report further noted that given the drop in commodity prices, sentiment towards all Indian assets is undoubtedly positive, however, this doesn't remove fundamental challenges and recovery in growth is likely to be modest.
Moreover, political uncertainty and risk of an early election could offset the positive impact of lower commodity prices, it said, adding, commodity prices remaining at current levels are "key".
With regards to equities, investors referred to India as a "Tease" market, on the radar once again thanks to lower commodity prices, coupled with expansionary global monetary conditions.
The consensus view was that India is among the few large markets that would welcome the inflows right now. Moreover, most felt that, if the currency holds (and the macro stabilises), the inflows could accelerate.
On rupee, the report said the fears of the INR weakening to the Rs 58-60 handle are now on the 'back-burner', despite the positive impact on the CAD, dollar inflows, the unit is expected to remain range-bound in the Rs 54-56 range.
According to Citigroup, the Reserve Bank of India is likely to go for a 25 bps cut on May 3 and guidance from this policy will help determine the extent of easing after that, it said.