Mumbai: Overseas investors bought Indian equities worth more than ₹9,000 crore in November, reversing two consecutive exit runs in the previous two months, as a decline in energy prices and stable US yields burnished the allure of risk assets in Emerging Markets.
Experts believe the trend will continue as India’s economic growth is likely to surprise on the upside while interest rates are expected to be stable, with the policy-influencing price gauge now trending close to the central bank’s target.
In the past ten years, overseas investors have purchased Indian stocks on six occasions in December, and have been net sellers on four occasions. In the past few years, the flows have remained positive in the month of December. Analysts said that growing geo-political tensions due to the conflict between Israel and Hamas, alongside a notable fall in US Treasury bond yields, had resulted in the outflows of foreign money in the past couple of months.
“The reversal in trend of foreign flows could be attributed to the fall in US treasury yield and crude oil prices,” said Himanshu Srivastava, Associate Director – Manager Research, Morningstar Investment Research. “With respect to Fed rates, the chances of more rate hikes are minimal, which is also a comfort for foreign investors.”
Brent crude futures stood at $84.28 per barrel.US Treasury yields stood at 4.28% on Thursday, after crossing 5% on October 23 for the first time since 2007.Analysts said that when yields stabilise, foreign investors turn bullish on India.
“Since yields have come off a bit, FIIs have turned buyers” said Amar Ambani, Head of Institutional Equities, YES Securities. “If the Middle East war crisis does not escalate further, then the view is that interest rates will peak out soon.”
Fund managers said that other factors that would decide the direction of foreign flows into Indian equity markets are the direction of crude oil prices and yields on US treasury bonds among others.
“Global factors such as escalation in Israel-Hamas conflict could change this trend and impact the foreign flows again,” said Srivastava.
Srivastava added that the US Fed’s interest rate policy is likely to have a significant impact on the foreign flows, while the Union election in India next year is expected to have a short-term impact.
Analysts said that flow of foreign funds are a function of risk on or risk off sentiment and if there is no other global crisis or negative global cues, then foreign inflows are expected. “If there is a risk-on sentiment and things remain the same, then next year the funds are likely to come to India,” said Ambani.
Analysts added that the foreign investors were bound to come to India since it stands out in terms of growth, inflation internals, return on equity and margin of safety.
“With no bubbles in banking, housing or corporate sector, and as an alternative to China, India will remain the top pick in emerging markets,” said Ambani.
Ambani added that on the debt side, India’s inclusion in the MSCI index and the weights going up, FPI are likely to come in debt instruments as well.
