Had it not been for the robust inflow of funds from overseas investors such as hedge fund and long-only funds, domestic equity indices wouldn’t have managed to record its all time high on November 4, 2010. In the current calendar year till date, Foreign Institutional Investors (FII) have purchased domestic equities worth $26.58 billion accounting for almost 46% of the total portfolio investment received by India in the past five years. During the last five years, the Indian equity market witnessed a total inflow of $58.15 billion.
“Five years back, India accounted for just 5% of the MSCI emerging market index which has now gone up to 10%. This itself shows the growing amount of interest shown by overseas investors in the domestic equity market, said Saurabh Mukherjea, head of institutional equities, Execution Noble. During the period, the number of Foreign Institutional Investors (FIIs) registered with Securities and Exchange Board of India (Sebi) has more than doubled to 1,740 from 823 entities registered during the start of 2006.
Hansi Mehrotra, Principal and business leader for investment consulting, Mercer said that a lot of enquiries are coming from institutional clients from newer regions like Canada, Australia, Norway and UK to invest in the Indian market either directly or indirectly. ?Previously if it was the traditional endowments and foundation funds and certain overseas high net-worth investors (HNI)s who were keen on investing in India, now there is an increasing number of global pension funds that are showing keen interest towards Indian equities.?
Currently there are over 120 overseas pension funds registered with Sebi from countries like US, UK, Canada, Norway, Switzerland, Denmark, Australia, Ireland, Singapore, Finland and Netherlands. While experts point out that majority of these investors entered India during the last 2-3 years, a similar number of other pension funds are also accessing India indirectly through some of the leading FIIs in India.
Market participants feel that the current market rally is largely driven by hedge funds on back of the easy availability of funds at a significantly low rate in US. ?Whenever there has been a strong rampant bull market driven largely by liquidity rather than the underlying fundamentals, 70% – 80% of the inflows are from hedge funds while the remaining came from the long-only funds,? added Mukherjea.