India takes a hit in FPI inflows

Foreign investors buy stocks worth $2.7 bn in 2016 so far as against $6.7 bn in H1 of 2015

FOREIGN funds have now bought stocks worth $630 million in the last nine sessions; the Sensex has, however, lost 271.91 points over this time. Between January and now, the Sensex has lost 0.4% (in dollar terms) closing Monday's session at 26,396.77 points. The Indian market has been a middler performing better than some peer markets but lagging behind others.

Foreign portfolio investors (FPIs) have bought Indian stocks worth $2.7 billion in 2016 so far, less than half the inflows received in the first half of 2015 when the tally was a more robust $6.7 billion. In 2014, during the same period, foreign portfolio investors pumped in $9.1 billion.

In comparison with the first six-month period in 2015 and 2014, foreign fund inflows this year have been modest for all emerging markets (EMs). FPIs have nearly halved their exposure to EM equities since the last one year. Strategists at HSBC believe foreign mutual fund positions are back down to levels seen in the first quarter of 2014. “Our recent conversations with foreign investors suggest that they are more interested in signs of growth like high frequency indicators and the recent earnings season, rather than politics and the prospects of reform. This is not to say that investors have given up on refor ms but simply that expectations are now more realistic.”

Among India's peers, Taiwan attracted the most foreign fund inflows as FPIs have bought $5.5 billion worth of equities. Indonesia saw the smallest amount of FPI inflows with only $490 million moving into its equity markets in the year so far.

Domestic institutional investors (DIIs) have also been net buyers of Indian equities in the year so far as they have invested close to R10,500 crore. Market watchers believe that flows from DIIs will continue to remain positive for some time with the increasing popularity of systematic investment plans (SIPs) — on a monthly basis, R3,000-R3,500 crore flows into SIPs — which have also helped investors yield better-than-benchmark returns even in times of turbulent market conditions.

Currently, the Indian stock markets are trading 16.6 times its FY18 forward earnings. Kotak Institutional Equities expects Indian markets to go up 10% by FY17-end. “It is a reasonable expectation but the markets would need to trade at around 17 times its FY18 estimated earnings. That is possible but the market has rarely traded at those levels for long,” the brokerage noted in a report.

Among India’s peers, Taiwan attracted the most foreign fund inflows as FPIs have bought $5.5 bn worth of equities. Indonesia saw the smallest amount of FPI inflows at $490 m in the year so far