FIIs look past political gloom to invest $10 bn in Jan-Mar

India may be facing some tough macro headwinds. And the ongoing political uncertainty is not helping ease investor-concerns. But foreign investors, it seems, are looking beyond. CNBC-TV18’s Nimesh Shah and Animesh Das report on the record inflow of USD 10 billion into the equity markets in the January-March quarter alone.

Finance minister P Chidambaram has a good reason to smile. His aggressive exercise in hard-selling India to foreign investors in an attempt to ramp up investments and fuel growth is starting to pay off.
The first quarter of 2013 has seen foreign investors pick up equity worth a whopping US 10 billion which makes up 22 percent of the total market capitalisation in the Indian equity markets — the highest level ever reached by foreign investors. Also Read: Invested more in India now than last 2 decades: JPMorgan
Of course, a lot of this interest comes on the back of the fact that in 2012, Indian equities generated returns of over 25 percent to become one of the best performing markets in Asia.
Another reason for this interest is that with political tension and a tough macroeconomic situation, domestic investors have stayed away and this has made India a cheaper opportunity.
FII-buying has been seen in every sector and in 7 of the 10 sectors, especially private banks, healthcare and IT, FII holdings surged to record highs.
A sluggish global economy has also helped India. Experts point to a sudden surge in liquidity, as investors withdraw from hard-hit markets and India's performance has helped draw this money in.
Austin Foregy, MD, JPMorgan Asset Management, says, “We have more money invested in India now than at any time in the last 20 years as a proportion of our total funds, certainly for funds that I am responsible for. We are starting to see the beginnings of interest rates coming down and the inflation cycle in the last two-to-three years has started to fall and is probably going to decline. There are still a lot of businesses with quite a lot of scope for growth once demand picks up and in India the consumer demand certainly seems pretty robust.”
This enthusiasm has also glossed over the fact that in the January-March quarter, India's GDP growth and current account deficit was much worse than expected. And this helped limit the underperformance of the equity markets to just 2 percent against the MSCI Emerging Markets Index — better even that China or Korea.
Stocks that saw the most buying by foreign investors during the first quarter of 2013 include Shriram Transport Finance, which saw foreign holding rise by 7.7 percent, and Strides Arcolabs, where holding went up by 8,2 percent. Manappuram Finance, Axis Bank, Tech Mahindra, Jaiprakash Power Ventures and Suzlon Energy haver also generated plenty of FII interest. But a few firms lost out—Housing Development & Infrastructure, IVRCL, Hindalco, Voltas, Crompton Greaves and LIC Housing Finance.
So, if this overall buying trend holds strong, India is definitely in for a rip-roaring 2013.