India attracting more than 50% of total EM flows: Quant Cap

Sumaira: It has been record highs for markets everywhere. Where are flows actually seeing the maximum traction? I know Japan has been at the center of the action literally, are you seeing a lot more incremental flows going into that market?

A: Japan as you mentioned, the new policy that the Japanese pension fund came out with couple of weeks back that will lead to incremental inflows into Japan. We wrote couple of weeks back that an increase in allocation towards equity from 12.5-24 percent by Japanese pension fund would lead to significant inflows into Japanese equity. In the next two weeks we saw the US investors investing big chunks of money into Japan. So, the trend has just started and it is going to continue for at least few weeks.

Reema: We have got a surprise rate cut from the People\\'s Bank of China (PBOC). Do you expect increased flows into China as well as Hang Seng on the back of that?

A: China has been very weak in terms of flows for the last two to two and half months. Only last week we saw marginal inflows into China. However, having said that the rate cut will definitely lead to some traction, some buying into Chinese market and Hang Seng.

It is too early to say to what extent the magnitude of flows would be into China but Chinese market will see marginal inflows. However, the magnitude of flows would remain in the range of USD 100-200 million. We won’t see big inflows going towards China.

Sumaira: In Q3 developed markets (DMs) saw their lowest inflows in the last two years odd. You think inflows into DMs are now drying up pretty much given how much action there is in Asia?

A: DM market last few quarters was driven by inflows into European market and that has completely dried out in the last three months. Last quarter data, in which DMs just saw USD 700 million of inflow, that was predominantly because of the heavy outflows seen by European equity funds. Europe still looks very weak in terms of flows and in terms of the way the market is behaving there.

However, within developed market US has been very strong in the last four weeks. So, I would say that DMs could be categorised into two parts; US and Japan on one end and Europe on the other side.

Within emerging markets (EMs) also we would see more inflows into countries like India, Taiwan, South Korea and China to some extent now after the rate cut. However, the range would be very limited in terms of the number of countries that will see inflows.

Reema: What about India, have we seen increased flows into India or are you sensing a bit of caution because we have run up so much, now we are sitting elevated levels of 8500 on the Nifty. How is the fund flow picture changed when you talk about India?

A: As you mentioned the market is at record high and if we combine the equity and debt flow into India this year, we are very close to 2010 highs. The combined figure for 2010 was USD 39.38 billion and this calendar year we are at USD 39.3 billion. So, the flows and the market reaction has been in tandem this year which we didn’t see in last couple of years. Having said that, I see that incrementally we will see more flows coming into India in the next few weeks.

We saw marginal inflows into September, October was very weak but the last two or three weeks of this month have seen substantial pick up in flows towards Indian market. You can look at the Securities and Exchange Board of India (Sebi) data, you can look at the EPFR data – everywhere we have seen that in terms of percentage of flows India has been attracting more than 50 percent of the flows out of the aggregated emerging market. So, going forward I see that trend to continue. India should see strong inflows in the next last few weeks of this year.