Foreign institutional investors (FIIs) may be shying away from increasing their positions in India, but global fund managers still find India an attractive market to invest, given its growth potential and also as the weightage on China is fast coming down.
The findings of a survey of fund managers by Bank of America Merrill Lynch (BofA-ML), hailing the viability of Indian market, incidentally coincided with the view of leading infrastructure finance company IDFC which expects growth in India to pick up due to a revival in capital expenditure spending and structural reforms.
India along with Taiwan is favoured by Asia Pacific investors who see China’s slowing economy as the “biggest tail risk” and expect a challenging macro environment amid a strengthening dollar and potential higher bond yields.
This view is significant as most global funds have been overweight on China over the past five years and a scale down will imply a shift to the next best emerging market, India, which has witnessed 7% growth trends. According to Ritesh Samadhiya, equity strategist with BofAML, these investors view sectors such as industrials, pharma and insurance to be the key growth drivers.
This stance echoes with IDFC’s opinion. “We expect growth at 7.7% FY16, likely to pick up to 7.9% in FY17,” says Indranil Pan, chief economist at IDFC. “The investment cycle is showing some early signs of recovery. Led by 18% increase in tax revenues, the government’s capex spending has increased by 18% in the first three months of the FY16, mostly in roads and civil aviation.”
He believes that this cycle will have to be led by the government as “the private sector is straddled with high debt and the banking sector, with its own NPA (non-performing asset) problems is hesitant to lend.