India now part of fabulous five; FII flow may top $50 billion by FY15

NEW DELHI: Growing geo-political concerns have made Indian markets more attractive, at least in short-term, among BRIC nations, say analysts. According to them, foreign flows may top $50 billion by FY15, if the government walks the talk with regards to implementation of key economic reforms.

Benchmark indices rose to their fresh record highs with both the Sensex and the Nifty surpassing its previous lifetimes highs hit back in July. The S&P BSE Sensex hit a fresh lifetime high of 26,406.92 and the Nifty recorded fresh high of 7880.50 in trade on Monday.

The Indian markets have rallied by around 30 per cent in US dollar terms and over 24 per cent in rupee terms so far in the year 2014, largely led by strong inflows by FIIs, which have already pumped in over $26 billion so far in the year 2014.

From an FII perspective, they are really bullish on the Indian economy and rising geo-political concerns have diverted fresh flows to Indian markets from Russia, say analysts.

“There is significant amount of FII money which is coming in the last few days and this trend is going to continue predominantly driven by the fact that money is moving out of Russia and the BRIC funds are bringing the money into India,” said Sudip Bandyopadhyay, President, Destimoney Securities.

“So it is just sell Russia buy India, that is the kind of thing happening for a lot of these funds and that money is reaching India and that is probably taking the market to different levels,” he added.

The Indian equity markets have been the biggest recipient of FII flows among emerging markets this year despite recent geopolitical tensions, swirling speculation regarding interest rate normalisation by the US Federal Reserve and surging US dollar, ET reported.

As a result, India’s weightage among the regional funds such as BRIC's fund, Asia-Pacific Fund and Emerging Markets has reached a significantly higher level than its historical average, added the report.

“Russia has become risk now and on the other side India is better placed in BRICS countries,” said A K Prabhakar, Independent Market Expert.

“It looks like FIIs are turning sellers in Russia on geo-political concerns, which is favouring the Indian markets,” he added. Prabhakar expects the Nifty to hit a target of 8500 by the next month-end and 9200 by December-end.

EPFR Global tracks both traditional and alternative funds globally and has $23.5 trillion in total assets. Experts believe that the absolute majority government in India will help attract more foreign investments and reduce bottlenecks in policymaking.

Expressing optimism on Indian markets, Adrian Mowat of JP Morgan said that India is likely to outperform most emerging markets (EMs) in 2014. “I expect EMs to give 10% returns in 2014. I remain overweight on India and recommend a large exposure to the market,” Mowat told ET Now.

FII flows may top $50 billion by FY15

Markets have so far rallied on hope and investors are waiting eagerly for implementation of key economic policies by the new government, to revive economic growth. Additionally, macros have improved substantially which also augured well for the Indian markets.
Foreign institutional flows, which are largely responsible for over 24 per cent rally seen in the Indian markets, are showing no signs of slowdown and if the government walks the talk, the flows may top $50 billion by FY15.

India, which was once burdened with the issues of high inflation, rising fiscal deficit and muted economic growth, is back on investment radar of big foreign institutional investors (FIIs) and is no longer part of ‘fragile five’, say analysts.

“India over the last 15 months or so has turned around dramatically. Back in May 2013, India used to be a part of fragile five where the deficits were higher, where the inflation was higher, where the currency was weaker and the equity markets were coming down,” said Devendra Nevgi, CEO, ZyFin Advisors.

However, the scenario has completely changed now. “We are into a situation where we are a part of fabulous five. The currency has stabilised, the current account deficits have come down and the fiscal deficits have come down,” he added.

From an FII perspective, they are really bullish on the Indian economy. They would probably continue to invest into India till the time the reforms are there and the implementation of the same is on the ground and the growth prospects remain high.

Yogesh Nagaonkar, VP, Institutional Equities, Bonanza Portfolio Ltd, is positive that FIIs will pump in $50bn in total by the end of FY15. India enjoyed a flood of FII money because of a change in the government and India looks better placed than most emerging markets.

As per latest data, FIIs have more than 25 per cent stake in 21 Nifty stocks. Their holding is at a 2-year high in 22 Nifty stocks.

They can further invest an additional $140 bn in Nifty stocks ($175bn in BSE 100 stocks) to meet the ownership limits set by the Govt, RBI & corporates, ICICI Securities said in a note.

“FIIs were putting in money even before the elections and are now even more optimistic about the steps taken by the new government for revival of the economy,” said Jayant Manglik, President - Retail Distribution, Religare Securities Ltd.

“They are also pinning hopes on improved corporate performance. India is an important investment destination for them among emerging markets. It shows in the investments made this year. The target of $50 billion of investment seems realistic to us provided India is able to walk the talk,” he added.