India’s share of overseas inflows into emerging markets (EMs) since 2008 has crossed the 50% mark, with more than $86 billion of the $1.55 trillion invested in EMs during CY08-CY14 coming here.
The sizeable inflows from foreign institutional investors (FIIs) have been responsible for taking the benchmark BSE Sensex from lows of 8,451 points in CY08 to lifetime highs of 25,735 on Wednesday. Since the 2008 lows, the Sensex has gained 174% in dollar terms.
After India, Taiwan (14.6%) and South Korea (13.9%) have cornered the major share of FIIs’ flows within EMs since 2008, attracting inflows of $22 billion and $21 billion, respectively. During this period, cumulative FII flows in Thailand have turned negative at $5 billion. Indonesia and Brazil have seen 7% each of the total FII flows, while Philippines has seen 3.9% of the total flows.
Experts say Indian markets have been the FII favourite as they have delivered the best return on equity (RoE). “Indian markets are trading at a premium compared to their EMs counterparts due to a higher RoE. India is likely to see even higher FII inflows with a strong government at the Centre. At the same time, other EMs are facing political and economic issues,” said UR Bhat, managing director, Dalton Capital Advisors.
The 30-share Sensex is currently trading at a one-year forward multiple of 13.9, above its long-term average valuations. YTD, the Sensex has outpaced EM peers with returns of more than 20% in dollar terms.
Analysts feel Indian markets don’t seem expensive compared to their EM peers. “Relative to EM, India does not appear expensive vs its history with MSCI EM. For example, optically, the MSCI India/MSCI EM PBV may seem above LT average, but the ratio is high largely because MSCI EM itself is trading at 20% discount to its LT average PBV,” Deutsche Bank said in a report.
YTD, FIIs have bought more than $9 billion worth of Indian equities. Since September 13, 2013, when Narendra Modi was named the BJP's Prime Ministerial candidate, overseas investors have pumped in over $16 billion. Bhat adds that FIIs would be keenly watching the Budget to decide on their further allocation.