India 'best story' in Asia, may see a bigger deluge of FII money

MUMBAI: The Indian equity market has seen net foreign portfolio inflows of $5.2 billion in January and February so far, which is already one-fourth of what it received in all of 2020.

The foreign inflows are just getting started, believe money managers, as there is increased acknowledgment that the Indian economy is now the best place to be in Asia.

“India looks much better positioned cyclically and relative to the pandemic time,” brokerage firm Credit Suisse said in a note on Tuesday. Credit Suisse upgraded its stance on the Indian equity market to ‘overweight’ from ‘market weight’ earlier, as it believes the country is in a ‘sweet spot’ compared with other Asian economies.

Credit Suisse’s optimism for Indian equities stems from its perception that the pandemic is no longer a major factor given the dramatic decline in Covid-19 cases in the country, which is likely due to the development of herd immunity in some areas.

Christopher Wood, global head of equity strategy at Jefferies, echoed Credit Suisse’s thoughts in his latest GREED & fear report, where he termed India the ‘best post-Covid story in Asia’.

Indian equities received over $23 billion in net FPI inflows in 2020 despite being one of the worst affected economies and countries hit by the Covid-19 pandemic. However, much of those inflows came during October-December, as globally investors shifted funds towards emerging markets exchange-traded funds.

Dedicated Indian offshore funds turned out to be net sellers of Indian equities during the December quarter, which showed there is still scope for further re-rating of Indian equities in foreign portfolios.

According to a MorningStar, India offshore funds witnessed net outflow of $986 million in the December quarter compared with a net outflow of $1.8 billion during the September quarter.

Money managers believe there is a long way to go before Indian equities go back to their ‘overweight’ status in foreign portfolios, as was the case prior to 2015. From February 2018 to December 2020, there was net outflow of approximately $18 billion from this segment, MorningStar said in its latest report.

India’s sharper-than-expected recovery and plummeting Covid-19 cases along with the rollout of the Covid vaccine and recent reforms may result in even India-dedicated offshore funds turning net buyers soon, said analysts.

Credit Suisse said the growth momentum in earnings per share for India is likely to be the strongest in Asia, while there is also much scope for interest rate cuts. “The upgrades reflect our expectation that economic and earnings recoveries are just starting their most rapid phases,” the brokerage said.

Credit Suisse has given Indian equities 7.2 per cent weightage in its model Asia-Pacific portfolio against India’s 6 per cent weightage in the MSCI Asia-Pacific Index.

“As part of the ongoing multi-decadal growth super-cycle, India is expected to add $1 trillion to nominal GDP every few years. This is a trend no investor wants to lose out on,” Ritu Aror, CEO and chief investment officer (CIO) Asia at Allianz Investment Managers, told in a recent interview.


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