Markets are poised to beat their Asian peers in terms of annual foreign inflows for the second time in a row. At $18.73 billion in 2013 so far, purchases by overseas investors into Indian equities are the highest compared with other Asian emerging markets. In 2012, FIIs’ net inflows in Indian markets stood at $24.54 billion.
Among other markets, Taiwan has seen highest net inflows after India at $8 billion. South Korea has seen net inflows of $4.5 billion. Meanwhile, Indonesia has seen net outflows to the tune of $1.5 billion, with economy growing at its slowest pace in nearly four years. “With macro-economic indicators improving, FIIs expect Indian economy to revive faster compared with Asian peers,” said Toral Munshi, head of India equity research, Credit Suisse Wealth Management.
India’s current account deficit (CAD) for the quarter ended September at $5.4 billion was lowest since 2010.
Market experts feel that despite volatility, FIIs have identified value in Indian economy. “In the early part of the year, FIIs were buying into consumers, auto and private banks. After the rupee started weakening, the inflows shifted towards exporters such as IT and Pharma. Since September, FIIs have been putting their money into cyclicals on expectations of capex cycle reviving,” said Munshi.
While FIIs had bought stocks worth $14.2 billion between January 1 and May 21, they started offloading Indian shares after the rupee’s slump May 22 onwards. FIIs sold stocks worth $2.6 billion between May 22 and August 31.
However, they resumed their buyings after September. FIIs have now bought about $7.5 billion worth of equities since September taking markets to their all-time highs. Sensex gained over 10% in this period. Meanwhile, among sectoral indices, capital goods index has been the top gainer since September showing changing preference to cyclicals. On Friday, FIIs bought another $40 million worth of Indian equities, as per provisional data on BSE.
All eyes are now on the Federal Open Markets Committee (FOMC), which meets on Wednesday to decide between tapering and sticking with the $85 billion monthly bond-buying stimulus package. “We expect US Fed to begin tapering in January. But, the impact on India is likely to be muted as the currency has stabilised and the current account deficit (CAD) has improved,” said Munshi.
Other foreign brokerages feel fiscal balance still remains a concern for investors. “The Indian macro environment has improved somewhat but investment recovery, inflation and fiscal balance remain key concerns,” said BNP Paribas in a research note.