‘Foreign money is chasing India’s reform story’

The recent liquidity-driven rally in Indian markets has largely been prompted by domestic flows, even as foreign institutional investors (FIIs) are recalibrating their strategy. CAMERON BRANDT, director of research, EPFR Global, tells PuneetWadhwa the lac

What is your assessment of fund flows this far in calendar year 2017 (CY17), across developed and emerging markets?

Of the themes expected to drive markets this year, the one with perhaps the greatest traction is the synchronised global recovery — Global Equity and Bond, Global Emerging Markets (GEM) Equity, and Bond Funds have enjoyed consistent inflows. With this preference for diversified exposure, none of the regional fund groups has shone, though at the country level the perception that India’s reform story has gotten its second wind has attracted plenty of fresh money to India Equity and Bond Funds.

Will the US Federal Reserve (US Fed) unwind its balance sheet in 2017? How will this impact flows into emerging markets (EMs)?

I do expect the US Fed to at least outline its timetable when it meets later this month, but the process itself is likely to proceed at an extremely cautious pace and has been well-flagged. So, I am not expecting a big shift away from EM funds. What are the biggest risks to

global financial markets and what is the probability of these events materialising over the next 6-12 months?

US overreaction to North Korea’s provocations, European Central Bank (ECB) moving too aggressively to tighten monetary policy in the euro zone and a major credit event in China are some of the key events that pose a risk to the global financial market’s stability.

How long do you think global central banks will remain accommodative and continue to pump in liquidity?

Certainly another 18 months. But, all of the major ones clearly think they’ve done as much as they can and that fiscal policy is needed to drive further improvements in the global economy.

Indian markets have largely been supported by domestic flows of late. Do you see the trend continuing? What’s keeping FIIs from investing more in India?

Foreign money is chasing the reform story, and it is very much a case of ‘show me some progress’. The goods and services tax (GST) reform has taken place so foreign investors need another reason to increase their allocation to India. How does India appear as

an investment destination now, given global developments? Are the markets overheated in the absence of earnings growth?

India frequently does better when EMs as a whole are not popular because of its limited exposure to foreign trade and strong domestic demand story. EMs are still quite popular and valuations are cheaper elsewhere. The issue of earnings growth and flat private investment are concerns in the Indian context.

How is the break-up of inflows into India looking? Which sectors have been the top priority and which ones have been laggards?

India’s general popularity has seen all sectors attract larger inflows, with financials and utilities seeing the most striking increases compared to last year.

“US overreaction to N Korea’s provocations, ECB’s aggressive move to tighten monetary policy in the euro zone and a major credit event in China are some events that pose a risk to financial market’s stability” “India frequently does better when EMs are not popular because of limited exposure to foreign trade and strong domestic demand. But, earnings growth and flat private investment are concerns”