$100 billion foreign funds into India stocks in last decade makes share market vulnerable to outflows

By: | Published: October 24, 2018 9:47 AM

The flow data suggest that India’s Sensex index, which has fallen around 13 percent from a high in late August, may be the most vulnerable to further outflows in the region if global risk aversion worsens.

stock markets, asia stock markets, global stock marketsForeign funds have pulled some .6 billion from the nation’s stocks this month through Monday, according to exchange data.

Monsoon season may be over, but India’s investors are at risk from a different kind of flood. Indian stocks have been the biggest emerging-Asian beneficiaries of the wave of liquidity that swept over world markets in the wake of the global financial crisis, according to data compiled by Bloomberg. That may also make them the most vulnerable, now that the waters are receding.

Foreign investors have pumped a net $101 billion into the country’s equities from the beginning of 2009 through the end of last quarter, Bloomberg calculations using cumulative year-end net investment flow data show. That’s more than the combined offshore purchases of South Korean and Taiwanese stocks over the period. Thailand is the only emerging Asian market excluding China that has seen outflows.

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On a proportional basis, foreign purchases of Indian stocks amount to just over 5 percent of total market capitalization. Taiwan and South Korea are the only other emerging Asian markets where offshore investment totaled more than 3 percent of the market. By contrast, investment in Southeast Asian stocks has been relatively minuscule.

The flow data suggest that India’s Sensex index, which has fallen around 13 percent from a high in late August, may be the most vulnerable to further outflows in the region if global risk aversion worsens. Foreign funds have pulled some $2.6 billion from the nation’s stocks this month through Monday, according to exchange data.

Indian stocks — until recently Asia’s top performers — have slumped as surging oil prices, a plunging rupee and growing financial concerns about non-bank lenders soured investor sentiment. The Sensex gauge rose 1.1 percent shortly after the open in Mumbai on Wednesday as most Asian equities advanced.

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