At $39.66 b, foreign portfolio flows at record high
BL Research Bureau:
Foreign Portfolio Investors (FPIs) have broken the record for the highest-ever purchases of Indian stocks and debt in a calendar year with a full month still to go.
They have bought (net basis) $39.66 billion of equity and fixed-income assets so far, beating the $39.45 billion in 2010.
The surge this year can be mainly attributed to the resilience of the rupee.
Even as emerging economy currencies such as the South Korean won, Brazilian real and South African rand depreciated by 4.5-6.5 per cent against the dollar, the rupee weakened by a mere 0.1 per cent this year.
The relative strength in both bond and equity markets in India compared with other emerging markets is the other reason. “India looks well placed among emerging markets given the structural reforms being undertaken by the new government at the Centre — more efficiency, total factor productivity, balance shift from public to private sector and deepening of financial markets,” says Gautam Chhaochharia of UBS in a note.
According to Bank of America Merrill Lynch’s Global Fund Manager Survey, India is the top preference for investors in both emerging and Asia-Pacific markets.
Indian sovereign bonds are attractive compared with most developed and emerging market bonds. The 10-year government bond yield of 8.15 per cent compares favourably with that of most other emerging markets (see accompanying table).
The Sensex too has trumped most other equity benchmarks in 2014, gaining 34 per cent. This is, by far, the best return among the larger emerging markets.
Foreign investors had put money into Indian stocks anticipating the Centre to give a major policy push that could improve corporate earnings.
“Markets are in love with our leader (Prime Minister Narendra Modi). We have seen that whenever there is strong leader, this attracts foreign investors,” says Ritesh Jain, Chief Investment Officer, Tata Mutual Fund.
“This was seen in Japan, Indonesia and Brazil. The same is happening in India.” However, the composition of flows this time round is different. In 2010, foreign investors were more enamoured by Indian equity, with stocks making up three-fourth of the inflows.
This year there is greater preference for debt — while stocks received $15.53 billion, debt got $24.13 billion.
And which segment of the equity market did they prefer? Total FPI holding in NSE-listed stocks was 20.1 per cent as of September 2014, up from the 18.8 per cent in September last year. This jump was predominantly in large-caps that moved up two percentage points to 22.2 per cent. In mid- and small-caps, the rise in holding was one percentage point to 14.8 per cent and 12.7 per cent, respectively.