India remains a bright spot and ranks highest among the favoured destination amongst Asian markets (excluding Japan) for global investors, despite persistent fears about a recession in China and a possible debt crisis in Emerging Markets (EMs).
According to the latest edition of Bank of America Merrill Lynch (BofA ML) fund manager survey, global investors reiterated overweight stance on India and raised the exposure to nearly 27% from 20% in the previous month. In contrast, investors reduced China’s ‘overweight’ rating to 6% from 11%. Global investors perceived China as the biggest tail risk, adding that nearly 71% of the survey participants thought China’s real GDP growth will fall below 6% mark.
While Chinese markets have fallen by 25% since the highs of June, investors think that the China-A market is still in a bubble.
Other tail risks for the global investors include possible breakdown in Eurozone due to Greece crisis, equity bubbles and falling commodity prices.
“India and Taiwan continue to be favoured by Asia (ex-Japan) investors,” stated BofA ML’s equity strategist, Ritesh Samadhiya, in the August survey.
Various foreign investments banks and institutions have shown preference towards Indian equities amid anticipation of strong economic and corporate earnings growth after the Narendra Modi-led NDA government came to power in May 2014. Many foreign investors perceive Prime Minister Modi and the government to be business friendly.
India’s benchmark indices gave 30% returns in calendar 2014, while mid-cap and small-cap stocks doubled during the period. During the period, foreign funds pumped in $16.16 billion last year.
BofA ML observed that industrial sector was the most favoured sector for the investors followed by pharmaceuticals and insurance. On the other hand, telecom, staples and utilities were the least preferred. Investors have trimmed their stand on technology sector from ‘overweight’ to ‘slight underweight’.
The report also stated that investments into European equities was picking-up as fears on Greece have receded.
Allocation to European stocks during August increased at the fastest pace in six months. Fund managers now ‘overweight’ on Europe led by a rebound in consumer spending and revival of growth – the main sources of growth for the Eurozone, BofA ML observed.