The Indian economy, despite the current slowdown, remains an attractive destination for global capital. Few events capture this as dramatically as trends in the country’s equity markets in recent weeks.
Sample this: Between June and August, foreign institutional investors (FIIs) pulled out more than `23,000 crore from Indian stocks.
The reason: The fear of an imminent scale-back of an easy loan policy in the US.
Despite the gloomy scenario within the country, India remains the second fastest growing large economy in the world behind China. So foreign investors still find India more attractive compared to other economies, since they are growing slower.
Emerging economies such as India have been receiving large slices of these ultra-cheap money, boosting equity and currency markets. But soon after US Fed Reserve chief Ben Bernanke hinted in May that a “tapering” of the policy was round the corner, foreign funds started flocking back to safer locations in the US. India was no exception.
The tide, however, has turned dramatically since September. The reason: the US Fed has deferred tapering, sending FIIs back to countries such as India where stocks continue to yield healthy returns.
The result: more than `25,000 crore of FII money have flowed into Indian equities since September.
Bombay Stock Exchange’s benchmark Sensex is fast closing in on the all-time intra-day high of 21,206.77 points it had scaled on January 10, 2008. The Sensex had hit an earlier all-time closing high of 21004.96 on November 5, 2010.
“We are raising our December-end Sensex target premised on our expectation that the pace of negative news flow over India and excessive investor pessimism may be receding,” said Abhay Laijawala, head of research, Deutsche Equities India, whose new target for the Sensex at the end of the year is 22,000 from the earlier 21,000.
Rajesh Cheruvu, chief investment officer, RBS Private Banking echoed similar views, who has forecast that the Sensex has a fair probability of reaching 23,000 by December.
“India will continue to be an attractive destination for FIIs, being the second-fastest growing large economy, despite structural challenges of high inflation and slower fiscal policy reforms,” said Cheruvu.