Indian equities see net outflows from FIIS so far in 201718

MUMBAI: Foreign investments in Indian stocks so far in this fiscal year show net outflows as expensive valuations and tensions in Korean peninsula weighed on investor sentiment. US Federal Reserve’s unwinding plan also bothered investors, but asset managers say the impact of it is already factored in.

For the fiscal year to date, FIIS are net sellers of Indian shares to the tune of $450 million, even as Sensex has climbed 7.77% in the same period. However, the Sensex has declined 2.34% from the record high of 32,686.48, seen on August 2.

“We have reduced a bit (of) India’s weight, because valuation level is on the high side and more importantly, because the outlook has become better in many other countries like China, Brazil and Russia,” said Hertta Alava, the Helsinki, Finlandbased director of emerging market funds at FIM Asset Management Ltd.

The Sensex trades at 18.64 times one-year forward priceto-earnings (P/E) ratio, higher than its peers in China, Brazil and Russia which trade at 13.48 times, 13.43 times and 5.66 times, respectively.

The Sensex trades at a 46.2% premium to MSCI index which trades at 15.63 times one-year forward earnings.

Earnings growth has indeed been hard to come by for Indian companies, with initial hurdles of structural reforms such a demonetisation and GST adding to the woes of already sluggish demand scenario.

Earnings downgrades are likely to continue, experts say and a revival in earnings growth is not in sight for now.

While strong reforms and macroeconomic parametres has ensured that Indian equities have been one of the favourites among emerging markets, the lack of earnings revival cannot be ignored.

Sensex (earnings per share) EPS estimates for 2017-18, has fallen 9.71% since the start of the current fiscal year to ₹1,553.27, while that for fiscal year 2019, has declined 4.98% to ₹1,936.12.

Meanwhile, on Wednesday, the US Federal Reserve left interest rates unchanged but signalled there could be one more rate increase by the end of the year despite a recent bout of low inflation.

“Within the EM universe, India is relatively differentiated as it is a commodity importer, with economic recovery likely as uncertainty around GST and lingering effects of GST settle down,” Robert F Baur, executive director and chief global economist at Us-based Principal Global Investors LLC, said on Thursday.