Religare Cap sees strong FII flow ahead; bets on RIL

Foreign institutional investor (FII) investments in Indian equities have crossed Rs 13,000 crore (about USD 2.5 billion) in January itself and Gautam Trivedi of Religare Capital Markets expects strong flows to continue in the near-term. However, continuous selling by the domestic investors remain a cause for worry, he told CNBC-TV18.
 
Pointing at the rosy picture ahead, Trivedi said that Asian clients are beginning to reallocate their funds, particularly long-only funds, to India and are therefore, increasing better allocation to the country. But, the India dedicated funds are still not witnessing inflows, he reminded.
 
Trivedi further added that the Indian equity benchmarks need to rise another 10 percent for retail interest to return. Going forward, interest rate cuts are going to be a key trigger for the markets, he said.
 
As far as sectors are concerned, Trivedi sees buying interest in IT, oil and gas. He is also positive on Reliance given its improving regulatory newsflow. 
 
Here is the edited transcript of the interview on CNBC-TV18.

Q: Flows have been very robust these last couple of months. What are your checks with your clients telling you? Are flows likely to be this strong with global risk on continuing?

A: I think flows will continue to remain strong. Let us not forget Vanguard which is rebalancing its portfolio away from the MSCI and going to FTSE. As we know, the FTSE South Korea is a developed market and hence the weightage of India goes up and as a function of that they will have to invest incremental USD 1.5 billion into India, the process of which has already begun.
 
So that is obviously one strong source of inflow. The second of course is the fact that foreigners continue to remain positive on India. I think we are seeing flows even on our desk on a day-to-day basis.
 
Q: It does not seem to translate into large traction for the market though. What do you make of that?

A: Let us not forget the fact that of the USD 2.4 billion that has come into India YTD, that is in the past three weeks, you have seen almost USD 2.1 billion of net selling from the domestic mutual funds and I think that clearly remains an ongoing concern for the last 12 months, where you effectively saw foreigners buying massively in the market. But, domestic mutual funds are compelled to sell because of the redemption pressure. That of course is limiting the gains for the market in absolute terms.

Q: What kind of money is coming into the market now? We have got used to an average of Rs 800 to Rs 1,000 crore a day. Is it coming in largely from the US, Europe or from Japan? What kind of funds are putting in the money if you can just break it down for us a bit?

A: I do not know if I have that level of granularity, but I think Exchange-Traded Fund (ETF) money has obviously been big, like for instance Vanguard and that is mostly US money. Of course, we have seen a lot of Asian accounts starting to reallocate funds to India.
 
I was in Asia last month where we met about 25 to 30 foreign institutional investors (FII) who are extremely positive on the market. I do not think we have met a single investor who was negative on the Indian market. A lot of them are actually surprised with the move India had last year in spite of all of the issues that the country had faced.
 
But, the fact is, inspite of rupee being down as much as 25 percent over the past 18 months, the level of interest from Asian investors was extremely strong. A lot of the long-onlys that we met in January were reallocating more to India and that remains a positive factor.
 
The other caveat I want to add in there is the other piece of feedback that we got from our investor meetings last month. It said that the big money has still not been coming to Asia and the catalyst for that is not India, it is going to be China. So when China turns and which it seems to be starting to now, we believe that there will be incrementally more money coming to Asia. It will not cannibalize India, it will actually be incrementally positive for India as well.
 
Q: The most recent EPFR data shows that global retail has actually begun to invest in the market. For the first time in the last six-seven years, there are some inflows coming in. Are you beginning to sense interest even in terms of global retail towards India, whether from the far east or otherwise?

A: No, we are not seeing any sense of that. Let me just also put in another caveat here. The India dedicated funds, whether they were hedge funds or long-onlys are still not incrementally seeing a lot of money coming in. All the money that we are seeing is still regional allocations and allocating more money to India and obviously away from other markets.