FIIs back with a bang! India all set to beat EM peers in next 6 months, say analysts

The domestic stock market may have trailed behind other emerging markets (EMs) in the first quarter of calendar year 2016, experts believe, there is no reason to writeoff India story in the EM space as yet.
 
Data suggested that the benchmark S&P BSE Sensex has lost a bit over 3 per cent so far this calendar year, in stark contrast to up to 16 per cent rise in emerging markets such as Brazil, Russia, Taiwan and South Korea during the same period.
 

Click here to Enlarge

Nonetheless, independent market analyst Sudip Bandhopadhyay finds it incorrect to deduce that India is not finding as much FII interest as others. He noted that stock markets across Brazil and Russia have recovered from significantly lower levels, which they tested last year on commodity price slump.
 
"Markets in Brazil and Russia had crashed last year on account of drastic drop in commodity prices, coupled with other corruption and governance issues. From those significantly lower levels, the markets in Brazil and Russia have recovered marginally, predominantly on the back of crude oil moving up from below $30 per barrel to around $40 per barrel. There are still significant problems in those markets and FIIs will not be favouring them over India," said Bandhopadhyay.

Rohit Gadia, Founder & CEO, CapitalVia Global Research also said that we should wait before saying India lost its charm. He suggested to keep an eye on the performance of fiscal reform in other emerging market as well, especially when its taken against a backdrop of weak commodity markets.

"We believe India story will remain intact and any shift of money towards other emerging market is temporary," said Gadia.

Ankur Varman of SBICAP Securities believes it was just overweight status of domestic market that pushed foreign investors in search of other markets and better valuations. He added India has not lost its charm and is still an overweight in all the global portfolios.
 
Umesh Mehta, Head of Research, SAMCO Securities said, "Markets like Brazil were drowned in severe multi-year bear market phase and, therefore, they could stage a strong comeback now. While India witnessed a long-running bull market phase at that time, it couldn't showcase similar jump the way its emerging peers did."
 
"There cannot be apples to apples comparison. If you compare global stock markets in a larger perspective, you would see each market has its own cycle. Domestic market witnessed selling pressure only because these were costlier in terms of relative valuation, but it continues to offer a lot of value to foreign institutional investors (FIIs)," added Mehta. 
 
Crackdown in the Chinese markets, crash in oil prices and the US Federal Reserve's flip-flop on interest rate hike cycle pushed global markets including India significantly lower as the year 2016 kicked off. However, post such correction, the domestic market did recover in March 2016 and attracted significant FII investments.
 
Data available with NSDL showed that FIIs invested to the tune of Rs 21,143 crore in the Indian equities in March 2016. This is in comparison with Rs 16,647 crore outflows that the domestic market witnessed in January and February combined. FIIs have poured in over Rs 4500 crore in just two trading sessions in the month of April.
 
Bandhopadhyay expects the domestic market will continue to attract FII investment and will outperform the EM block in the next three-six months.
 
"However, for this to happen, Indian interest rates need to start coming down and monsoon has to be good. Once these factors are taken care of, corporate results in India will start improving, leading to future valuation becoming more attractive," said the expert.

Mehta of SAMCO Securities also said a lot of money is expected in the Indian shores as valuations are reasonable, He added that Indian markets will stand out in the next three-six months, and the momentum will continue.

However, Varman of SBICAP believes domestic market may correct in the short-term as benchmark indices gained over 10 per cent in the March itself, but he also expected market to touch fresh highs in the calendar year 2016.

"A  profit booking or cooling-off period can be there in market, but post that I again see it moving up based on earnings coming in. I will not be surprised to see a new life-high in this calendar year," said Varman.