FIIs favour equities for 11th month running

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Foreign portfolio investors (FPIs) continued to pour dollars into domestic equities for the 11th consecutive month in July, equaling a recent record of continuous inflows for 11 months between July 2012 and May 2013.

With Rs 13,286.85 crore inflows in July (till Monday), the FPIs have pumped in Rs 1,25,961 crore over 11 months since September 1, 2013, compared with Rs 1,69,573 crore that they had infused between July 2012 and May 2013.

The longest record of consecutive mon­thly net inflows into domestic equities was of 18 months from November 2002 to April 2004, data available with Bloomberg since 1997 showed.

Under new Sebi rules that came into effect from June, FPIs in-clude all FIIs, th­eir sub-accou­nts and qua­lified foreign investors (QFI). Inflows before June thus pertained to FIIs only.

The rise in investor appetite for riskier assets has led to strong inflows into emerging markets equities, with India getting some preference over others due to better growth recovery prospects.

“Developed markets performed far better than most emerging markets last year. With valuations rising there, some of the money has now shifted to the emerging markets. We expect good inflows to continue to emerging markets, including India, as long as there is a healthy growth differential between emerging and developed economies and space for investment in quality stocks,” said Nilesh Shetty, associate fund manager for equity at Quantum Mutual Fund.

The MSCI world index was up 27 per cent in 2013 while MSCI emerging market index was down 5 per cent. Thanks to the rally over the last four months of 2013, Sensex outperformed its emerging market peers with 9 per cent gain, but failed to outdo its developed market counterparts.

Shetty said while the US Federal Reserve had been reducing the pace of bond buying, the programme is still intact. He pointed out that most developed economies have big pension funds, which keep looking at geographies to invest. Even a fraction of their money can be substantial for an emerging market like India.

India has attracted net inflows of $12.13 billion to equities year to date in comparison with Taiwan’s $11.43 billion, South Korea’s $5.90 billion, Brazil’s $6.52 billion and Indonesia’s $4.95 billion. The inflows have been steady in spite of the monthly reduction in bond buying by the US Federal Reserve.

“One of the factors behind the increase in FII investment in India may be the expectation of an increase in FDI. FDI obviously requires longer-term commitment from the business than portfolio investment. Expectation is that there will be conscious efforts by the government to improve the environment to do business in India,” said Nobutaka Kitajima, chief investment officer of LIC Nomura Mutual Fund

The MSCI emerging markets index has risen 7.76 per cent this calendar, compared with 5 per cent rise in the MSCI world index. But MSCI India index has surged 19.52 per cent during this period.

In the last 60 months, foreign inflows have been positive in 46 months and very strong over the past couple of months on hopes that the pro-business Modi government would quickly kickstart the investment cycle deemed necessary for growth revival.


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