Foreign institutional investors, who have invested more than $10 billion (Rs 60,000 crore) in Indian equities over the last six months in anticipation of a business-friendly Narendra Modi-led government coming to power after the LS polls, remain optimistic about such an outcome though they have cut their purchases of India equities.
Numbers tell the story: Between September 13, 2013, when Modi was anointed the BJP’s prime ministerial candidate, and March 31, 2014, the benchmark BSE Sensex rose 13.44% from 19,732.76 to 22,386.27. Since then, it has been flat and closed last Friday at 22,403.89.So, are FIIs now less optimistic about Modi’s chances? "FIIs are not selling Indian equities. They have only slowed down their purchases a little for the moment," said Rikesh Parikh, vice-president, equities, Motilal Oswal Securities, a leading brokerage house.
That is because the underlying reasons for the FII inflows— improving macro-economic indicators and expected policy initiatives by a new government—remain intact. “A stable government (read: a Modi-led government) is the prime focus,” said Premal Madhavji, head of equities, Espirito Santo Securities, a leading Europe-based FII.
Several FIIs, among them Goldman Sachs, CLSA, Nomura and BNP Paribas, have come out with reports saying the victory of a Modi-led BJP in the Lok Sabha polls is the best chance India has of getting a stable government that can then take policy initiatives to restart the stalled investment cycle.
“The best hope of a new investment cycle in India is a decisive victory by Narendra Modi in the 2014 general elections,” Chris Wood, the chief securities analyst at CLSA, said in a recent report.
Between November and March, FIIs were investing an average of more than Rs 1,000 crore in India every day. That has fallen to about Rs 250 crore per day now. Why? Because many FIIs have exhausted or almost used up their funds allocation for India. Also, having invested so much in India, many FIIs are watching from the sidelines to see if their bets pay off.
But they continue to view the Indian market as an attractive long-term bet. “We are bullish on Indian equities in the long run,” said Madhavji.
Thus even if Indian GDP grows at 6% this year, it will still remain the fastest growing large economy in the world after China, attracting investors. “The equity markets are at close to the 10-year average levels and are not over-priced,” said Parikh.