Best December for FII inflows

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This holiday season seems to be one of the busiest ever for overseas investors in Indian equities. (Reuters) This holiday season seems to be one of the busiest ever for overseas investors in Indian equities. (Reuters)
SummaryThis holiday season seems to be one of the busiest ever for overseas investors in Indian equities.

Buy $4.12 bn worth of Indian equities so far this month

This holiday season seems to be one of the busiest ever for overseas investors in Indian equities. Foreign institutional investors (FIIs) shopped for equities worth more than $4 billion this month, making it the best ever December for overseas inflows.

As per Sebi data, FIIs have net bought $4.12 billion worth of Indian equities so far this month — the highest ever for the month of December — with two additional sessions still to go. Moreover, overseas funds net bought Indian stocks for the 29th consecutive session as on December 26 — the longest stretch of net purchases since the record 41-day streak beginning October 27, 2010. December also saw the second highest monthly inflows this year, after February ($5.13 billion).

The amount of equity inflows this month is greater than the sum of money that has flown into Indian equities during December in the last six years (from 2006 to 2011). Sebi data showed that FIIs bought $19.66 million of Indian equity in December 2011, nearly $329.21 million in December 2010, around $2.2 billion in December 2009, about $270 million in December 2008 and about $1.25 billion in December 2007.

Market experts were of the view that in absence of growth in the global economy, Indian markets continue to look attractive, backed by expectations of additional reforms in the next two-three months, coupled with a cut in interest rates by the RBI. Several foreign brokerages and institutions remain optimistic on Indian equities and have increased their March 2013 Sensex targets in the range of 21,000-23,500.

According to a recent JPMorgan report, India remained the top destination for investment in JPMorgan's BRIC market for 2013 because of improving policy and easier monetary conditions in the country. “We remain constructive on Indian equities as we go into 2013,” said JPMorgan analysts, led by Adrian Mowat and Sunil Garg, in the recent report.

More importantly, resolution to the US ‘fiscal cliff’ dilemma and continued action from global central banks will reduce India's tail risks from macro stability tribulations, including a high external deficit, all of which could favour the Indian equity markets.

According to German major, Deutsche Bank, more investors could flock back to equities amid a fall in risk aversion and rising confidence around global growth. Further, the US is expected to stage a stronger-than-expected recovery.

“Equities are cheap relative to bonds... The ERP (Equity Risk Premium) is at its highest multi-year level since the early 1980s. In the US, reduction in fiscal policy uncertainty will be supportive of growth in H2 of 2013,” said Deutsche Bank in its ‘Themes 2013’ report.

Andrew Holland, CEO, Ambit Investment Advisory, said Indian markets benefited from a combination of events in September and remained optimistic of continued fund flows. Holland said, “India was the cleanest shirt in the laundry basket because of the conditions in global market. While the laundry basket could change, it doesn't mean FII inflows will stop coming to India.”

Indian markets has also attracted the highest amount of foreign flows compared with Asian peers. As per Bloomberg data, year-to-date inflows in Indian equities stand at over $24 billion. Japan stood second with $16 billion of overseas inflows since January, followed by South Korea ($15.1 billion), Taiwan ($4.7 billion), Philippines ($2.5 billion), Thailand ($2.45 billion) and Indonesia ($1.65 billion).

However, even as equity inflows in Indian markets have been robust, the market performance for December (purely in terms of percentage returns) has been among the worst in more than a decade.

As per Bloomberg data, the 30-share Sensex has given -0.5% returns so far this month vis-a-vis record inflows in December. In December 2011, Sensex gave -4.15% returns vis-a-via FII inflows of as low as $19.66 million.

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