Foreign investors turn cautious, do Indian markets have enough support?
Foreign investors are turning increasingly cautious of investing in India, and they have pulled out more than Rs 26,000 in the last two months. Geoffrey Dennis of UBS says that foreign investors are concerned about earnings not picking up, and also the disappointing GDP growth numbers. “I think India is in a slightly difficult situation right now. There are a couple of things concerning foreign investors. One is of course you are seeing a series of earnings downgrade. We have seen several downgrades over the last several months and we also had an unexpectedly weak GDP number in the first quarter of the fiscal year,” Geoffrey Dennis, managing director and head, Global Emerging Markets, UBS Securities said in an interview to CNBC TV18.
While on one side, FIIs have sold more than $3.2 billion in the July-September quarter, on the other side, Domestic institutional investors (DIIs) invested a record Rs 41,507 crore in the three months ended September, their highest quarterly purchase of local stocks. In fact the last two months of August and September alone saw record Mutual Fund inflows of more than Rs 20,000 crore in August as well as September.
In India, domestic investors have actually held the fort, which would otherwise have crumbled, given unprecedented FII outflows. For how long will this trend continue? Many mutual fund experts say that the inflows are likely to continue. Ridham Desai of Morgan Stanley says that the Indian investor has now realised that equities as an asset class provide the best possible return. Another strong point has been the constant growth of SIP investing in India. Currently, the mutual fund industry receives about Rs 5,400 crore every month through SIPs — an investment vehicle that allows investors to invest in small amounts periodically instead of lump sum.
Nilesh Shah of Kotak AMC says that mutual funds will continue to see strong inflows. “From a flows perspective, we remain positive. A drop in fixed income rates and real estate prices have attracted investors to equities as the long-term story holds good,” Nilesh Shah, MD, Kotak AMC, told in an interview to ET Now recently.