Indian benchmark indices rose to record highs on Friday after a rate cut by the People’s Bank of China and expectations of quantitative easing from the European Central Bank fuelled hopes the Reserve Bank of India might consider trimming policy rates at its December 2 meet. The Sensex ended 267.07 points or 0.95% higher to close at a record 28,334.63, while the broader 50-share Nifty ended with gains of 75.45 points or 0.9% at 8,477.35. The Bank Nifty surged to new highs after the Kotak Mahindra Bank-ING Vysya Bank merger announcement and hopes of a rate cut. Though India is probably the biggest beneficiary of lower crude oil prices that will narrow the twin deficits as also help ease inflation, FIIs aren’t swayed by this factor alone.
While the drop in crude oil prices has intensified — since mid-June they have lost more than 30% and currently trade at close to $79 per barrel — FII purchases have followed the same broad pattern across the emerging market universe, Bloomberg data show.
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While net crude oil importers like India and Indonesia, which tend to benefit the most from falling crude oil prices, have seen net FII inflows of $5.5 billion and $415 million, respectively, during the period, other big emerging markets like South Korea, Taiwan and even Brazil (a net exporter of commodities including crude oil) have attracted net FII funds of anywhere between $4.3 billion and $4.4 billion in the last six months.
The Indian market is the best performer globally with the benchmark Sensex scaling multiple records this year — on Friday, it closed at a new high of 28,334.63 points, translating into year-to-date gains of 34%.
However, more than crude oil prices, the momentum in the market seems to be supported by expectations of accelerated reforms given that even the September quarter results have failed to provide any substantial earnings upgrades. Bloomberg data show that after the earnings season, consensus estimates for FY15 Sensex EPS have moderated from Rs 1,587 to Rs 1,574 while FY16 numbers remained unchanged near Rs 1,892.