Foreign institutional investors (FIIs) have been net buyers for 14 consecutive sessions, even as emerging market funds posted outflows of $3 billion for the week ended February 26, as per EPFR Global data. Emerging markets have been on tenterhooks due to QE tapering and more recently the Ukraine crisis.
On Tuesday, FIIs bought another $29.93 million worth of equities, according to the BSE provisional data. In February, FIIs bought $400 million worth of equities, the second highest inflows among Asian emerging markets. Only Indonesia has received higher FII inflow at $658.94 million. Over the last 14 sessions, FIIs have bought $778.16 million worth of equities taking their year-to-date tally to $449.16 million.
In terms of returns, Indian markets have outperformed most of its emerging market peers (excluding South Africa, Thailand and Indonesia) in February with the Sensex gaining 4.25% in dollar terms.
Experts feel Indian markets have managed to draw FII flows on account of improving macro-economic factors. The Indian market outperformed most of its key EM peers driven by (i) decreasing likelihood of a fractured election verdict in the upcoming Lok Sabha election, (ii) both WPI and CPI inflation dipping by more than 100bps month-on-month, and (iii) improving global risk appetite, said Deutsche Bank analysts in a recent research note.
On Monday the HSBC India Manufacturing Purchasing Managers Index (PMI) showed that Indias manufacturing sector expanding at the fastest pace in February. The PMI data stood at 52.5 against 51.4 reported in the previous month.
Experts add that rupees stability amid an emerging market currency sell-off is a positive from FIIs point of view. The fact that rupee has remained stable is a source of great comfort for overseas investors, said Nirmal Jain, chairman, IIFL. The rupee appreciated 1.44% in February.
Experts add that Sensex companies are poised to see a further rise in their earnings. Sensex is currently trading at 14-times (in line with long-term average), and we expect 15% EPS growth for Sensex in FY15, added Deutsche Bank analysts.
Meanwhile, the French brokerage BNP Paribas recently upgraded India from underweight to overweight on expectations that election results would be the next trigger for markets. "We believe that the next catalyst for the Indian market will be the election results (May 2014). Recent opinion polls suggest that the BJP-led NDA alliance is poised to get quite close to the magic number of 272, which we believe is the outcome most favoured by the equity markets," said Manishi Raychaudhari, head (research), BNP Paribas in a note.