Nifty show by Indian benchmarks on surging foreign investments
Indian bourses trump emerging markets with inflows of $13.81 billion so far in 2014
As the market steps into the last quarter of the calendar year, Indian benchmarks are well ahead of their emerging market peers. This stellar performance is due mainly to the liberal investment by foreign portfolio investors, who appear to favour Indian equities over stocks in other emerging markets.
The Nifty and the Sensex are up 26 per cent and 25.5 per cent respectively since January. The Jakarta Composite Index of Indonesia is the second best performer, recording 15.8 per cent return. Among India’s BRICS counterparts, Chinese, Brazilian and South African stocks posted returns of 2 to 10 per cent while Russian stocks were clobbered due to the ongoing political tensions in Ukraine. The Indian rally is being driven by foreign portfolio investors. The equity market has attracted $13.81 billion so far this year. This is one of the highest net inflows recorded among the emerging countries. Taiwan is the second best with inflows of $10.87 billion into its equity market.
A complete change in market sentiment is the main reason for the strong inflows. Foreign investors pulled out $3 billion between May and September 2013 as the Federal Reserve announced its intention to taper bond re-purchases. However, two major events happened in September 2013. One, Raghuram Rajan took over as the RBI Governor and, two, Narendra Modi was nominated BJP’s Prime Ministerial candidate.
The measures initiated by Rajan stabilised the rupee, making overseas investors change their stance on Indian investments. Expectation of a reform-oriented Union Government too boosted sentiment. As a result, the Indian equity market has attracted net inflows of $22 billion between September 2013 and September 2014.
Indian debt has also attracted strong foreign portfolio flows in the last 12 months, with around $16 billion flowing in. A stable outlook for the currency coupled with expectation of lower interest rates prompted these flows.
However, inflows into equity as well as debt are beginning to turn volatile since the beginning of September as a surging dollar and strengthening US economy are prompting global investors to move money back to the US.