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Politics fails to tame spirits of foreign fund managers

Foreign fund mangers continue to pump greenbacks into Indian stocks as the growth here offers better opportunities than other emerging markets, reports Arun Kumar.

business Updated: Oct 03, 2007 22:55 IST
Arun Kumar

Political upheavals, the old bugbear of Indian stock markets, seem to have lost their punch. Despite power-sharing trouble at the Centre and in some states, foreign fund mangers continue to pump greenbacks into Indian stocks as the growth here offers better opportunities than other emerging markets.

The CPM has been making loud noises against the UPA government it supports on account of the nuclear deal with US and also other issues, and talk of a mid-term poll has been rife, while technology centre Karnataka is facing a power struggle involving the BJP and Janata Dal (S), but fund managers are unperturbed.

"The current round of spark has come from foreign fund managers primarily due to the fact that India offers great opportunities," said Nimesh Kampani, chairman of JM Financial. "One of the key reasons is that the foreign fund managers do not understand the state-level politics. In fact the market has already discounted mid-term elections by February or March 2008. It may happen or not. Even if it happens, then what? The growth story remains secular," Kampani said.

However, Finance Minister P Chidambaram advised retail investors to exercise caution as the benchmark index nears the 18,000-point level, while welcoming the interest shown by foreign institutional investors (FIIs). "I do not think retail investors are entering the market at this level. I would advise them caution," he said and added: "There is apparently lot of interest from foreign institutional investors. Why should we not welcome it?"

There is also an expectation that the rupee may appreciate further against the US dollar, and this may add to the actual return from investments for overseas investors as they would buy dollars cheaper when they want to take money out.

"Given that the funds are expected to earn in excess of 20 per cent due to a combination of growth and dollar depreciation no other country in the world would give such a high return," Kampani said.

The BSE Sensex on Wednesday zoomed to a new intra-day peak of 17,953 points. The Sensex extended its gaining streak for the 11th trading session in a row and ended with a gain of 518.42 points at 17,847.04 points.

R Sreeshankar, chief investment officer of IL&FS feels that the global liquidity will continue to drive the market.

"Foreign funds are pouring funds into the market simply because the market offers better opportunity," he said.