In CY13, Indian equities among worst performers despite record FII inflows

Despite seeing one of the highest inflows by foreign institutional investors (FIIs), Indian equities have been among the most underperforming markets in the current calendar year compared to their Asian and emerging market peers.

While FIIs have net bought over $4.5 billion worth of Indian equities so far in the current calendar year, the Sensex has given returns of 1.2% in terms of local currency. The 50-share Nifty has fared worse, giving returns of 0.88%. The markets that have outperformed the Nifty include the Stock Exchange of Thai index with returns of 8.17% against FII flows of $560 million, followed by Shanghai Composite (7.23%), and Nikkei 225 (6.27%).

In contrast, Indian markets have emerged as the third best performers after Thailand and China in dollar terms. The Sensex has given returns of 4.39% from the beginning of the current calendar year. The Thai index has given returns of 11.7%, while Shanghai Composite has yielded 7.21% in dollar terms.

Surprisingly, the Nikkei 225 index has given negative returns of 1.06% from the start of 2013, despite receiving the highest amount of portfolio investment (over $9.5 billion). Recently, a Bank of America Merrill Lynch report said that the market outperformance in the second half of 2012 and the overweight position of India vis-a-vis other emerging markets continued to pose a risk to Indian equities, given the uncertainties on interest rate cycle and current account deficits.

The report said

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