Foreign funds pour close to $11 b into Indian equities followed by S Korea which received $6.3 b
Indian equities have attracted more foreign institutional flows than any other Asian market so far in 2012 as portfolio investments resumed in July on renewed hopes of policy action by the government to revive the economic growth. Foreign funds have poured close to $11 billion (. 55,000 crore) into Indian equities so far this year with the second highest being South Korea, which clocked flows worth $6.3 billion (. 31,500) since January.
A majority of the inflows took place between January and March and then in July. There were various reasons for the intermittent flows. While foreign funds flooded money into Indian stocks in the January-March period as fund managers felt the rupee was cheap compared to the dollar, the flows in July were largely driven by the optimism surrounding the change in guard at the finance ministry. Kunal Ghosh, the US-based emerging markets portfolio manager at Allianz Global Markets said July inflows were also in the expectation of policy rate cuts by the Reserve Bank of India. "The first quarter [inflow] was because of the equity market risk-on trade among foreign investors, and especially since India had significantly underperformed in 2011," he said.
Almost . 47,500 crore flowed into India in January-March and July which is seven times the flows in the first half of 2011. Brokers said the prospect of P Chidambaram, considered a more market-friendly finance minister than his predecessor Pranab Mukherjee, taking charge prompted foreign institutions, which had not invested in January-March, to put money into Indian stocks. A majority of the flows into India this year have been by exchange-traded funds and India-dedicated funds, brokers said.
"We have seen a reasonable amount of inflows via exchange-traded funds or ETFs noticed in the first quarter with the pace picking up recently as well," said Avinash Gupta-MD and head of global market sales, Bank ofAmerica —Merrill Lynch. A sector-wide break-up of data further reveals that over 26% of the inflow was into the finance sector; including banks the share of inflow is 32%. This was higher than the defensive bet fast moving consumer goods (17%) and information technology (15%). "There is a lot of hope on the policy front in India which is attracting the attention of foreign investors," said UR Bhat, MD, Dalton Capital Advisors. "In addition there is talk of monetary easing both in the US and Europe and this has traditionally resulted in money flowing into emerging markets like India. In anticipation of this monetary easing and the potential runup in markets like India foreign investors are probably taking positions in Indian stocks," he said.
However, a large part of these data hides one-off deals, institutional salespersons said. "A number of block trades were executed during the year, where the sellers held their positions under FDI, whilst some of the buyers were FIIs — this has skewed the numbers a bit to show larger FII inflows," said Gupta. While the absolute inflow numbers were the highest for India,when expressed as a share of market capitalisation, Philippines had the highest inflow so far in 2012, said Allianz's Ghosh. "We measure the flows as a fraction of market capitalisation of the country. On that basis, in the last 12 months, the highest flow was for Philippines and India was in line with Indonesia," he said.
In the months ahead, there a few reasons that could deter FIIs inflow, including headwinds affecting chances of a rate cut by RBI and the nature of quantitative easing abroad. Yet, analysts feel that, as seen in the months earlier, the outflow may not be significant.
rajesh.mascarenhas@timesgoup.com  |
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