Foreign institutional investors (FIIs), sellers for the better part of 2011 after having shopped for nearly $30 billion worth of Indian equities last year, have been bottom-fishing in the first few sessions of December. However, the amount has been very small, with purchases of just $380 million. While the government has been struggling to push through reforms, investors appear to believe slowing growth might prompt the central bank to make money more easily available. Meanwhile, with the rupee having depreciated by 11.2% in 2011 so far, the Indian market has fallen over 19% in real terms and 30.15% in dollar terms.
India?s poor performance is followed by Taiwan, down 24.76% in dollar terms and 22.17% in real terms. According to Bloomberg data, FIIs have sold stocks worth over $145 million in the Indian market while South Korea saw an outflow of $7.7 billion and Indonesia an inflow of over $2.8 billion. However, the Korean market has lost just 7.5% in dollar terms, partly because its currency didn?t weaken as much. In the last six months, India saw $ 2.9 billion of withdrawals, Korea $2.08 billion and Brazil $3.5 billion. Taiwan is the only emerging country to have seen inflows, of over $620 million.
Among BRIC economies too, India has ended up at the bottom due to the sharp fall in the local currency. ?Both the market and currency now reflect a high degree of investor disillusion compared with the euphoric mood which prevailed this time last year,? says a Deutsche Bank report.
FIIs had pumped in $18.5 billion in 2007 but had pulled out $12.9 billion in 2008 in the wake of the Lehman crisis.
The market is likely to end 2012 with modest gains. Deutsche Bank?s Global Emerging Market (GEM) reports says, ?We had been reviewing our stance on the market for some time, but held off making changes until there was more evidence that both inflation was topping out and that the government was fully committed and able to enact and implement the structural economic policies necessary to unlock the bottlenecks, which are holding back the domestic economy.? The report adds: ?Looking forward into 2012, the best one can say about Indian equities is that they are cheap relative to their own history and relative to their history relative to the rest of GEM. We will continue to wait for some more tangible signs of progress in the key issues before we consider upgrading to overweight.?
Brokerages believe 2012 will be a a rough year for equities. Citi, for instance, is going with a target of 18,400 for the Sensex on the basis of a one-year forward price-to-earnings multiple of 14x, a 10% discount to the long-term average. Citi?s report hit a note of optimism by stating that ?inflation is statistically set to go down, interest rates will not continue to rise, and the government has recently done more than in two years. Valuations are relatively attractive and earnings growth has been cut almost as sharply as in 2008?.