Foreign investors to soon rush for India, time to look at largecaps, says Saurabh Mukherjea

Saurabh Mukherjea (File pic)

Foreign institutional investors are homing in on India and funds will begin to flow thick and fast over the next 12 months, Saurabh Mukherjea, who founded Marcellus Investment Managers, says after the BJP's clean sweep in three state elections.

"It is relatively clear that the BJP's hat-trick means that pretty much the entire Hindi-speaking belt is theirs. For now, the 2024 general elections as a key market risk is off the table, which means FII money will flow in over the next 12 months," Mukherjea said in a conversation with Moneycontrol.

Also read: Saurabh Mukherjea cut position in Bajaj Finance after Q2 earnings concall. Here's why

Breaking down the math, he said that in the context of the global FII community, India has a very small allocation. Foreign investors have allocated just $0.6 trillion to India compared to $3.5 trillion to China. In terms of dollar returns, China has been a disappointment. The 10-year CAGR return from the Chinese market is a meagre 3 percent, compared to 13-14 percent returns generated from India.

"So what we are seeing over the last 12 months is a whole new generation of FIIs, people who have never invested in India, but now considering India for the first time in their careers, trying to shift their money from China to India, even if they shift one-sixth of their China allocation, they will pretty much double the amount of FII money in India," he said.

Watch the full interview here

And, when FIIs make a comeback in a big way, they will buy more largecaps than smallcaps. "They (FIIs) cannot buy smallcaps due to liquidity issues, they have to load up on largecaps," he pointed out.

In October, FIIs sold equities worth approximately $2.66 billion, while in September, they sold around $2.19 billion. In November, FIIs bought $2.3 billion worth shares but this included MSCI adjustment.

What makes the case stronger for India is the dismal picture in China. Around 30 percent of China's banking system assets are real estate, which is in distress, SME shutdowns are running at record levels, youth unemployment is spiralling, industrial economy seems to be either barely growing or in some quarters even shrinking, the fund manager said.

Also read: India to see $3.6-bn inflow from US federal pension fund index switch

"Now MSCI indices are being created without China in it and with a very heavy allocation to India. So this new-generation index fund will become the US' and Western retail investor's preferred medium to come in to India. Meanwhile, the pension fund guys and the endowment guys are booking their India tickets and they will come in and also pump money actively," Mukherjea said.

At 12pm on December 4, a day after four-state election results, the Sensex was up 984 points or 1.46 percent at 68,465, and the Nifty was up 306 points or 1.51 percent at 20,574.

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