H1 buying by FIIs falls 22% as QE tapering bites

Written by fe Bureau | Mumbai | Updated: Jul 1 2014, 14:27pm hrs
SensexWhile Sensex has rallied over 20% in H1CY14, FIIs bought shares worth $10.1 billion against $13 billion in 1HCY13. (Reuters)
While the BSE benchmark Sensex has given best half-yearly returns since 2009, flows from foreign institutional investors (FIIs) into Indian equities in H1CY14 are below the levels seen during the corresponding period in CY13.

While Sensex has rallied over 20% in H1CY14, FIIs bought shares worth $10.1 billion against $13 billion in 1HCY13.

However, experts believe if the Budget presents an economic vision, CY14 could witness record FII flows. Among emerging markets, India has received a major portion of the FII flows YTD, as the election results are being seen as a watershed moment. However, due to QE tapering, the quantum of flows seen in H1CY14 is lower than H1CY13. But if the Budget outlines Indias economic vision for the next five years, we could see record inflows in CY14, said UR Bhat, MD, Dalton Capital Advisors. FIIs recorded highest ever inflows in CY10 at $29 billion.

Foreign brokerages are of the view that reforms by the Modi government could further drive the markets. We continue to expect markets to re-rate, led by expectations of a surge in reforms and an economic recovery to follow in 12-18 months. Our year-end target values the market at 16.5x, a premium to long-term averages of 14.5x. If we look at the 2009 elections, too, the markets traded at 16-18x for the rest of the year, BoFA ML analysts said in a recent report.

In H1CY14, Sensex has given the best returns in the world at 23.63% in dollar terms.

Foreign brokerages added that the Budget is likely to shift the bias of government policy towards consumption.

We see finance minister Arun Jaitley building a Budget around three objectives shift the bias of government policy from consumption to investment, raise the sustainable GDP growth rate by promoting labour-intensive manufacturing and infrastructure investments, address fiscal imbalances through subsidy rationalisation and non-tax revenues and create enabling environment for domestic savings, Deutsche Bank said in a report.