FIIs reduce equity exposure to India

According to a recent research report by Credit Suisse,nearly half of FII flows into emerging Asia (excluding China) have come to India in 2010 compared to its weight of 20 per cent. The report says that a rise in global risk aversion could lead to strong outflows from India. So,reversal of flows remains one of the key risks to Indian markets as the possibility of a double-dip recession in developed markets cannot be ruled out,adds the report.

Citigroup Global Markets is currently neutral on India with a country allocation of 8 per cent. The brokerage advises highest allocation to China (18.2 per cent) followed by South Korea (13.2). For India,Citigroup expects about 15 per cent return in 2011,similar to 10 per cent return in the year-till-date and says that in 2011,cyclical factors will lose their recent prominence and structural growth factors will take over.

Inflation and the high current account deficit remain a concern for India,analysts say. However,Bhat pointed out that the bigger concern remains Europe. “Inflation is coming down and although current account deficit is a bit high,it’s manageable. The key factor that could reverse FII inflows is the deteriorating situation in Europe,” he said.

There isn’t much to suggest that FIIs will change their long-term stance towards India as the country’s growth story remains intact. UBS,in its recent research report,maintains a positive view on Indian stocks in 2011 with a March 2012 Sensex target of 24,600. Analysts Suresh Mahadevan and Varun Ahuja said the Indian economy would continue to deliver an 8 per cent GDP growth rate even as corporate India would deliver an earnings growth in mid to high teens in FY12. They add the Sensex EPS will grow to 20 per cent in FY12 and the stable government will likely continue to make progress on the various reforms.FE