Putting at rest stock market fears that there may be a flight of capital invested by foreign institutional investors (FIIs) in the face of a draft proposal by the Securities and Exchange Board of India (Sebi) to curb the flow of Participatory Notes (PNs), global investment banker Merrill Lynch has said more money was expected to flow into India and China due to high growth.
The flow of foreign money into Asia remains strong, Merrill Lynch's Investment Strategy Report for Asia-Pacific said. India witnessed $6 billion of net foreign buying since the sub-prime led credit crisis spread to the global markets in July, compared with $8 billion flow since January this year.
Pension funds and insurance companies have missed out on the Asia story so far this decade and are facing diminishing returns elsewhere. They are getting interested in Asia and when they do, a large amount of money will flow in, the study has said.
China and India are still small at just 2.5 per cent of MSCI World Index, while Europe and US account for 69.5 per cent. However, China and India remain the prime growth markets, which often drives valuations rather than size, the report said. The MSCI World Index is a market capitalisation index designed to measure global developed market equity performance.
Highlighting the high-growth prospects for domestic companies, the report said, “Where else could you build 25,000-MW of power capacity, which Reliance Power is going to do, except China.”
Merrill Lynch has moved India from an underweight to a marketweight in its recommended asset allocation.