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Bullish bets on India at a high

October 22, 2014 08:53 IST

Investors more overweight on India compared to other emerging markets says Bank of America Merrill Lynch.

Foreign investors’ overweight stance on Indian compared to the basket of global emerging markets (GEM) is at a high. 

An overweight stance indicates that an investor has allocated more money to a security or constituent than its weight in the index. The overweight position on India is 400 basis points, according to a Bank of America Merrill Lynch India Strategy report dated October 21. 

“Over the past two weeks, we met with more than 80 investors across the US and Asia. Nearly everyone with whom we met was overweight (OW) on India, although many investors had trimmed their OW positions slightly. This supports our analysis that India is the biggest OW market among GEM investors, with an OW position of more than 400 bps,” says the report authored by research analysts Jyotivardhan Jaipuria and Anand Kumar. 

“The consensus bullishness on India is probably one of the risk factors for Indian markets,” it adds. 

The report highlights investors’ concerns on the slow pace of reforms in India. However, the expectation that some steps would be taken after the state elections in Maharashtra and Haryana has turned out to be true, as is evident from the oil reforms that took place over the weekend. 

The other reforms the market is looking forward to include those on taxation, land acquisition and labour laws. While investors believe markets might be weak in October, the report says that markets and earnings would double in the next four years. 

“While investors may not agree that earnings will be as strong as we forecast, almost all agreed that we should see a sharp rebound in earnings,” the report notes.

BS Reporter in Mumbai
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