Even as the developed markets have begun recovering, the Indian equity market remains attractive for foreign institutional investors (FIIs) who will continue to look at India for healthy returns, global investment guru and executive chairman of the Templeton Emerging Markets Group, Mark Mobius, said on Friday.
"My outlook for emerging markets in general and India in particular remains very positive. The Indian market will continue to attract FII investors, who prefer emerging markets as growth and returns are stronger in these markets. As per my view, the FII inflow into the Indian market will be as good, if not better than last year," Mobius said.
When asked about the latest pull-out of FIIs, he said it's a temporary phenomenon. The long-term prospect for India remains very attractive for the foreign investors as returns will be much more than from developed markets.
The preference for emerging markets is because even when the developed markets are recovering, the return on growth will not be more than 10 per cent, he explained. So, emerging markets like India will remain an attracting option for foreign funds.
During 2010, the flow of foreign funds into the Indian capital markets, including debt, was to the tune of $ 39.4 billion, while equities alone attracted an investment of $ 29.3 billion during 2010. However, the last few months saw a pull- out of FII money from the Indian market.
Though bullish about the Indian equity market, Mobius said it will be difficult to put a number to it. "The market growth will be equal or better than last year. However, it will not be appropriate to put a number to the growth," Mobius said.
The Indian market grew by about 15 per cent in the last year. However, the performance was the worst among Asian countries. Yet, Mobius feels that in the long-term, the prospects of the Indian market is better than that of China due to a large population of young Indians, which gives it an edge over its bigger neighbour.
"If you look at investment from a longer term point of view, the prospects for India are better as compared to China. There are a large number of young people at the bottom of the pyramid, who will continue to drive the future growth and demand," Mobius said.
Mobius favours investments in two sectors in India-consumer durables and commodities. He expects maximum growth in these two sectors. "I like consumer durables and commodities sectors," Mobius said.
At present, Tata Chemicals, Hindalco and Sesa Goa are among the top holdings of his emerging markets portfolio. On inflationary worries, he said that inflation is a common concern across emerging economies. However, he will not be upset if there is an increase in wages and salaries, which will keep the consumer demand growing.
Mobius however, pointed out that there could be a slowdown in policy initiatives by the government due to the various corruption cases that it is faced with. This is a short-term risk attached to investments in the Indian market, he added.