With the road paved for additional reforms measures after the UPA-led government won the vote on foreign investment in retail and increased expectations of interest rate cut by the Reserve Bank of India, foreign institutional investors (FIIs) are on a buying spree, with year-to-date inflows into Indian equities crossing $21-billion mark the highest since 2010 and second highest in the last 14 years.
According to BSE and Bloomberg data, FIIs pumped-in $1 billion into Indian equities during the last five trading sessions, after pumping in an equal amount of money in the last week of November on hopes the government will take more steps to boost economic growth and investment.
Data also shows that Indian market has attracted the highest amount of foreign flows compared with its Asian peers so far. South Korea stood second with $12.6 billion since January, followed by Japan ($9.94 billion), Taiwan ($4.13 billion), Taiwan ($4.13 billion), Philippines ($2.3 billion), Thailand ($1.89 billion) and Indonesia ($1.55).
Indian markets posted their third weekly gain led by sharp gains in real estate, oil & gas, capital goods, and power utilities stocks as foreign investors continue to bet on high beta stocks at a time when the government has begun its divestment programme and the primary market is also showing early signs of revival. On a weekly basis, Sensex and Nifty gained nearly 0.5% to their new highs in almost two years. However, it was the broader market that seems to be leading the rally, with BSE Midcap and Small indices gaining nearly 2.5% each on a week-on-week basis.
Realty gained the most this week, with the BSE Realty index rising 5.18% even after the 1% correction on Friday. Among other gainers, BSE Power index, BSE Oil & Gas index, BSE Consumer Durables, BSE Capital Goods, CNX Bankex, also advanced in the range of 1-3% from the previous week.
Experts said the market was seeing revival in domestic retail and individual investors sentiment, that usually tends to follow the investment judgment of the FIIs. With the government announcing series of reforms measures in September to boost economic growth, easy liquidity conditions, foreign institutions (rating agencies and brokerages) expressed their positive stance on Indian equities.
The gains came in largely on the back of the passage of the multi-brand retail Bill in both houses of Parliament. This has given hope that further reforms will be taken up in the remaining part of the Winter session of Parliament. We expect the government to take up further fiscal reforms over the next few days, said Dipen Shah, head of Private Client Group Research, Kotak Securities.
Market experts were of the view that foreign inflows would continue into Indian equities as FIIs have been usually net buyers in the beginning of the calendar year. Further, a bust of optimism about the likelihood of US lawmakers cobbling together some kind of budget deal and avoid the fiscal cliff has also made Indian markets one of the favoured investment destinations around the globe.
We expect that the government will take more reforms measures like reforming the banking and insurance sectors. With hopes of additional reforms and the countrys central bank hinting to reduce interest rates, we expect the market to do well.. FII money should also continue to flow into Indian equities, said K Sandeep Nayak, ED & CEO, Centrum Broking.
According to EPFR Global data, flows into emerging markets equity funds hit a 10 week-high and Asia ex-Japan equity funds again stood out among the three major regional groups.