Emerging market equity funds received a modest $44.6 million of fresh inflows during the week ended June 2 after a net outflow of $4.72 billion in the previous four weeks (in whole of May), according to data reported by the EmergingMarkets.com, a global research agency which tracks the flow of funds in and out of emerging markets.
Even after the meltdown in May, the Indian markets rank among the most overweight among its Asian peers.
"India continues to be one of the most overweight markets with nearly half the funds overweight on India. On a net overweight basis, India is third behind Korea and Mexico," a survey conducted at the recent Global Emerging Markets (GEM) conference hosted by Merrill Lynch in California revealed.
"We are overweight on India and are currently holding on to our investments," said Alex K G Ng, chief investment officer, Asia-Pacific, ABN Amro Asset Management (Asia) Ltd, on the sidelines of the launch of their asset management business in India.
An informal survey of GEM funds to get an idea of current investor sentiment revealed that India is not expected to be a star performer this year as the possible selling by overseas investors continues to be the biggest risk for investors who stay put, the survey said.
The majority of investors attending the Merrill Lynch GEM conference downplayed the significance of a change in government in India.
Despite a significant correction seen in the equity market valuations after the elections
However, the majority of investors are looking to add to their holdings of stocks and reduce their levels of cash over the next 1-3 months. Many believed that the June 30 US Federal Reserve meeting could be a positive turning point for a summer rally in GEM equities.
In fact, the fund managers believe GEM equities will give the best returns though Japanese equities are closely catching up. Investors are bearish on the US markets, both debt and equity.
While India is among the most overweight markets, funds do not believe India is likely to be among the markets which will post the best 12-month upside potential. In fact, Korea is expected to post the best returns in a 12-month time frame, followed closely by Turkey, Brazil and Russia.
Fresh fund inflows into India are likely to be mixed. Among emerging markets, the South African markets are expected to get the maximum inflows, followed by Russia, Turkey and Brazil.
India is in the mid-range with a more or less neutral view. Investors are still not keen on underweight markets such as China, Argentina and Chile, the survey showed.
The survey also reported that fund managers are still overweight on the telecom sector, and funds are most likely to exit the energy and financial sectors.
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