China to gain from reforms; DMs to see more inflows: Quant

Post the new reforms in China, it will see more fund flows compared to India, says Rishav Dev, Quant Capital. Even otherwise, India is very weak fundamentally, he says. "High inflation, weak currency, current account deficit (CAD) and political uncertainties are hardly the logical bedfellows of stock market highs," he adds.

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He says as per EPFR data, on a four week basis India has already seen outflows of close to USD 344 million. He feels developed markets, in particular Europe, would continue to see more inflows when compared to emerging markets. Below is the verbatim transcript of Rishav Dev's interview on CNBC-TV18 Q: Has the economic reforms in China skewed the flows picture into China which would disadvantage India?
A: I definitely think that the policy reform has had a positive effect on the fund flows into China. This week's data from EPFR suggests that close to USD 633 million has flown into China. Having said that on a four week basis India has already seen outflows of close to USD 344 million. Even the most bullish investor in India would admit that high inflation, weak currency, current account deficit (CAD) and political uncertainties are hardly the logical bedfellows of stock market highs. I think with the new reforms coming into China, China would see more inflows as compared to India. Overall also if you look at emerging market we will see China dominating the inflows as compared to other major emerging market countries. Q: You said outflows of USD 344 million from India in the last four weeks, is it? Then you must be including debt because we did not see it in equity?
A: This is purely equity flows which was published by the EPFR. EPFR data is a little bit different from Sebi data. If you just go by the Sebi data, yesterday was the only day when we saw outflows. If you have to compare India and China we have to use a source which is common to both and EPFR is that source. Q: How to do you marry EPFR data versus the Sebi data to analyse flows?
A: EPFR data includes four components - mutual flows, ETFs, annuities and insurance whereas the Sebi data would include things like hedge funds, proprietary flows, foreign funds investing on behalf of wealthy investors. So there is a big gap between EPFR and Sebi. If you want to compare countries within emerging markets EPFR is right source. Q: You gave us some quarterly data on overall global flows. It was very clear that in October this pro-DM trade had given way to a little bit of pro-EM trade. Has that flow now reversed again? Is there once again a flow towards DM away from EM equities at all?
A: Since the beginning of the year developed markets (DM) have managed to attract inflows to the tune of USD 246 billion, out of which US alone attracted close to USD 106 billion, but lately within DM it is Europe which is attracting huge inflows. In the last 25 weeks, we have seen inflows to the tune of USD 42 billion in Europe. If we look at the US macro data, in Europe both on the political and financial fronts things look better as compared to what it was a year back. So I think DM, in particular Europe would continue to see more inflows as compared to EM.