FII inflows 2nd highest in several years

‘Attractive valuations have encouraged investors to park funds in India’...

Written by ENS Economic Bureau | Mumbai | Published:August 9, 2012 1:14 am

Renewed faith in India’s growth story has resulted in a sharp rise in foreign inflows,with the year-to-date investment by foreign institutional investors (FIIs) touching one of the highest levels ever compared with the corresponding period in the last few years.

According to Bloomberg data,FIIs have infused $11.17 billion into the Indian market so far this year (CY’12). This is only a tad lower than 2010 when the same period saw FIIs investing $11.20 billion. On a monthly basis in CY’12,July saw the third-highest inflow of funds ($2.01 billion) after February ($5.13 billion) and January ($2.18 billion).

Market experts attribute the inflows to the renewed optimism in Indian equities,which is expected to benefit from favourable fiscal and monetary actions by the government. Finance minister P Chidambaram has allayed investors’ fears on policy paralysis and assured to put the country back on a high growth trajectory by reducing trade and fiscal deficit.

Interestingly,analysts pointed out that this sharp increase in foreign fund flow in India is not “hot money” or “fast money”. Attractive valuations,combined with individual stock-picking,has encouraged overseas investors to park their funds more confidently in India.

Rajesh Cheruvu,chief investment officer,RBS Private Banking (India),said: “Had these flows been for a short period of time,markets would have rallied sharply and the Nifty would have been 6,000 or above. As typical tactical investments would be routed through exchange traded funds (ETFs),which would tend to drive the broad markets in one way,but we are seeing few stocks inching to highs,while others have been left out. Hence,the market is range-bound since mid-February. (At present) Indian equities are trading at 12.8x to earnings versus a historical average of 13.8x on one-year forward P/E,which makes investments attractive on a multi-year horizon.”

Experts also say that though it is difficult to predict future fund flows into equity markets,FIIs could pump in another $4-5 billion by end of this year,given the current environment and realistic expectations about government policy actions.

According to the data,Indian markets attracted the highest amount of flows compared with its Asian peers so far.

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