Mumbai: For the first time since the global equity markets rally started in early March, weekly fund flows into emerging markets turned negative last week as investors sought to book profits after a steep rise in valuations, fund managers said.
The fund managers, though, are more optimistic about India than China due to India’s lesser dependence on commodity exports and a stable government that’s more inclined to reforms such as disinvestments and building infrastructure.
Foreign institutional investors (FIIs), the backbone of India’s equity markets, pulled out $518 million (around Rs2,500 crore) in the week ended 26 June, according to data from markets regulator Securities and Exchange Board of India. There were no fund inflows that week from FIIs.
Smallest increase: The Bombay Stock Exchange building. The benchmark Sensex index rose just 1.67% in the last week. Madhu Kapparath / Mint
This is the highest weekly outflow from India since mid-December and the second straight fall after a $238 million outflow the previous week.
The Sensex, India’s most-widely tracked index, rose just 1.67% in the week ended 26 June, one of the smallest increases since the rally started. On Monday, the Sensex closed nearly flat at 14,785.74 points.
According to fund tracker EPFR Global, investors redeemed some $1.9 billion from emerging market funds last week, the biggest since the lows of October when world equity markets went into a tailspin following the collapse of American investment bank Lehman Brothers Holdings Inc.
“Investors questioned where and when demand for their (emerging markets such as Brazil and China) manufactured and commodity exports will pick up,” the fund tracker said in a statement.
“There’s some amount of profit taking that’s happening,” said Sanjay Sachdev, country manager and regional fund manager (South-East Asia) at Tokyo-based Shinsei Bank Ltd. The redemptions have “more to do with global fund flows”, he said.
The Sensex has gained some 80% since 9 March as FIIs pumped in $6.6 billion betting on an economic turnaround later this year and a stable government. But with valuations rising sharply in a short time, many investors want to take advantage and book returns.
“The market seems to believe that a turnaround has already happened,” said Ullal Ravindra Bhat, managing director of the Indian arm of Dalton Strategic Partnership Llp., a global fund registered as an FII. “But people are a bit jittery and groping for direction. As long as the budget satisfies expectations, it’s okay. Else, the markets might correct a bit more after the budget.”
The budget, to be presented on 6 July, has also traditionally been a statement of policy intent. Fund managers are keener on India than on China for the first time since the financial crisis started, according to a Citigroup Global Markets report that indicates that fund managers are more underweight on China than on India.
EPFR says in its statement that although China has deployed a range of policies to sustain an 8% plus GDP (gross domestic product) growth, foreign demand was still week and with earnings under pressure, “investors started kicking the tires a bit harder in mid-June”.