The two ongoing global crises -- Greece debt woes and the China's market meltdown -- have not led to a sell-off by foreign investors in India, at least till July 8.
The two ongoing global crises — Greece debt woes and the China’s market meltdown — have not led to a sell-off by foreign investors in India, at least till July 8. On the contrary, India has witnessed capital inflows and analysts are expecting a rise in inflows in the wake of the Chinese market crash as they are not ruling out a significant hike in fund allocation to emerging markets like India.
While the Greek debt drama has been playing out for almost a week, there has been a net rise of Rs 3,757 crore in foreign portfolio investment in the equity market in the month of July (till 8th). This reversal of the trend came after foreign investors pulled out Rs 5,768 crore in May and Rs 3,344 crore in June this year, signalling that foreign investors are likely to focus on markets like India. Indications from the market are that many of the funds are likely to turn away from Europe and China and increase their investments in India and other safe havens. The Shanghai Composite index which vaulted 152 per cent since July 2014 has now lost 32 per cent of its value since the June 12 peak of 5,166.
Experts says investments to India will come on merit, given the fact that the economy is recovering slowly and capital investments have started picking up. “There are a lot of positives for the Indian market after the Chinese metldown as oil prices and commodity prices have come down. But at the same time I still feel that investments will in happen in India on merits,” said Sanjeev Prasad senior executive director & co head (Strategy) of Kotak Institutional Equities’ Network.
Reserve Bank Governor Raghuram Rajan had last week said India will face only a limited impact from the global woes and also indicated that the country’s “macro policies were good and we had enough buffers, including foreign exchange reserves to protect against any possible eventuality”.
“I would say economy is picking up. We see some signs of capital investment picking up. There is a continuing need, which the government is trying to address, of putting some of the stalled projects back on track,” Rajan said.
That said, foreign investment won’t come in a hurry. “Economy wise India will benefit because of falling commodity prices. And if we have a good monsoon then the rate cut which is anticipated in the final quarter of this financial year may happen in this calendar year. I am not saying that the funds that is allocated for China will immediately come to India but because of the the Greece and Chinese volatility, India’s pecking order in the emerging countries will improve over long term,” said Harendra Kumar, head- Instituional Broking and Global research at Elara Capital.
According to Nilesh Shah, MD, Kotak Mutual Fund, at the home front, July monsoon would be an important period as far as agricultural and rural economy is concerned. Rainfall in June was 16 per cent more than normal. Further, Monsoon session in parliament would be another indicator to watch. Important legislations like banking reforms, land acquisition bill and GST are waiting to be passed. “Their passage will provide support to the market and boost to the real economy. We have come to an end of June quarter and soon Indian corporates quarterly results will be out. The market is expecting 10 per cent earnings growth on a year-on-year basis. A strong guidance for the rest of FY16 will be supportive to the market,” Shah said.
One of the key driver for future earnings growth is the interest rate cut which the RBI has been effecting since January 2015. Now it’s important that the benefit be passed on to the borrower which would help the future earnings to grow. Foreign investors are keenly watching the developments with renewed interest.