Uncertainty Over State Polls Holding FPIs Back from Allocating More to India
the last few years has gone into midcaps, leading to the Nifty Midcap 100 index hitting an all-time high. Gross inflow into equity mutual funds every month is around ₹ 11,000-12,000 crore while net inflows are in the ₹ 5,000-7,000 crore range. These are the highest ever for equity mutual funds.
The inflows have made up for inconsistent foreign investor participation.
Excluding Friday’s purchases amounting to ₹ 8,000 crore, mostly for HDFC Bank shares after overseas ownership fell below a 74% limit, foreign institutional investors (FIIs) have bought equity worth only about ₹ 1,000 crore this year.
This is one of the key reasons why large caps have been relative underperformers. Brokers said US Federal Reserve chief Janet Yellen’s remark that rate increases are on track will keep inflows low. Last week, Yellen said the Federal Reserve intends to raise rates three times this year and possibly even at the upcoming meeting in March. As global growth is starting to pick up, particularly in Europe and US, emerging market funds will target countries that benefit more from that.
“Given the valuation and also the fact that flows are likely to go to EMs which will benefit more from pickup in global growth, you will not see the big flows (into Indian markets) coming back soon,” said Andrew Holland, CEO, Avendus Capital-Alternate Strategies.
Uncertainty over the outcome of state elections, especially Uttar Pradesh, is also holding foreign investors back from allocating more money to India.