Nifty closes above 10,000, but has India become less attractive for FIIs?

MUMBAI: A day after it first flirted with levels above 10,000 points, the benchmark Nifty index on Wednesday closed above the mark for the first time. While stock valuations are expensive, a comparison with those of emerging markets as a whole shows India has become relatively less attractive now and the key contributor to the rally is global liquidity.

The 50-stock Nifty closed at 10,020.65 points, up 0.56% from its previous close, lifted by a stock split announcement by Yes Bank Ltd and gains in metal stocks. The BSE’s 30-share Sensex rose 0.48% to close at 32,382.46 points.

“Global liquidity has been flowing into India, in tandem with other markets. Liquidity chases market performance, earnings growth and strong macros ,” said Gautam Dug gad, head of research, institutional equities, at Motilal Oswal Financial Services Ltd.

To be sure, Indian stocks as a whole enjoy some tailwinds: higher economic growth expectations, good monsoon rains that are expected to lift rural incomes and expectations of an interest rate cut that may fuel spending.

However, this hasn’ t led to any optimism in earnings expectations. The Nifty now trades at 18 times expected one-year forward earnings. While that makes India one of the most expensive markets in the world, the premium it enjoys over other emerging markets has come down.

MSCI India’s price-earnings ratio is now about 40% higher than the multiple for MSCI Emerging Markets. About two years ago, this premium was more than 65%, showing that India’s relative attractiveness has come down since then.

Foreign institutional investors have bought a net of $8.73 billion in equities while domestic institutional investors have bought a net of ₹24,126.87 crore.

“Liquidity may soon dry up once Indian markets start correcting ,” said Am ba ree sh Bali ga, an independent market analyst.