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FIIs shop but won't drop

By Deepak Korgaonkar
Last updated on: July 03, 2014 09:49 IST
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DollarsForeign institutional investors continue to bet big on the India story, with their net investment in Indian equities so far this year already surpassing the $10-billion mark.

According to the Securities and Exchange Board of India, FIIs have invested $10.34 billion (Rs 62,053 crore) so far this year.

On Wednesday, they invested an additional $216 million (Rs 1,291 crore), according to provisional data with stock exchanges.

With this, FIIs’ net investment in Indian equities has exceeded $10 billion for the third consecutive year.

In 2012, they made net inflow of $24.4 billion, while their inflows last year stood at $20.1 billion.

Their cumulative investment since November 1992 stands at $156 billion (Rs 747,937 crore), data show.

FIIs’ assets under custody, or the value of the investments they currently hold, including gains on their initial investments, stand at Rs 6.59 lakh crore (Rs 6.59 trillion), according to Sebi data.

The country with the highest assets under custody is the US, with US-based FIIs accounting for Rs 1.57 lakh crore (Rs 1.57 trillion) of assets.

With Rs 1.34 lakh crore (Rs 1.34 trillion), Mauritius is second, while Singapore is third (Rs 1.16 lakh crore or Rs 1.16 trillion).

FIIs from the United Arab Emirates, Luxembourg, the UK and the Netherlands account for Rs 25,000 crore-Rs 55,000 crore (Rs 250-550 billion) each, according to Sebi data.

Other members of the top 10 list in terms of assets under custody are Canada, Australia and Norway.

The strong inflow in equities saw the BSE Sensex hit a record high of 25,865 in intra-day trade on Wednesday, before closing at 25,841.21.

Analysts say the road ahead for Indian equities looks promising.

They expect a multi-year bull run, to be supported by an improvement in corporate earnings and the overall economy.

Chart“Markets returns are a function of three pillars -- earnings, valuations and flows.

On a relative basis, India continues to trade at a premium to the region, but given its stronger growth expectations, it seems well placed on a PEG (price/earnings to growth) basis versus peers.

India’s relatively low market cap-to-GDP (gross domestic product) and minuscule household equity penetration suggest there is substantial headroom for equity markets to rally,” said a recent report by Avendus Wealth Management.

“Given the positive election outcome, earnings are expected to grow at a compounded annual growth rate of 16 per cent over FY14-16.

As earnings growth recovers, valuations will also tend to trade above the average of 15 times.

Should the Budget lay down the foundation of a more sustainable growth trajectory for the next five years, the ‘hope rally’ that unfolded in the run-up to the election will definitely have much more steam before correction sets in,” it added.

Amar Ambani, head of research at IIFL, believes Sensex earnings grow 15 per cent CAGR through the next three years.

“We are positive about the current market environment.

Mid-caps have seen a sharp rise in the past couple of quarters and we expect this to continue in the coming quarters,” he says.

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Deepak Korgaonkar in Mumbai
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