Mumbai: Foreign institutional investors (FIIs) are not selling India heavily despite a sharply weaker rupee as the long-term structural story appears intact. The currency mayhem is not specific completely to India but to emerging markets at large, with a strengthening dollar causing pain. Surging crude oil prices have weighed heavily on Asia’s third-largest economy, which imports 80% of its crude oil requirements.

With the next US interest rate hike expected in three weeks, Brazil’s presidential elections a month away and leading indicators for Europe losing momentum, EPFR-tracked Emerging Markets Equity Funds posted their fifth outflow in the past six weeks in the week ended 12 September.

“We have not reduced our long-held overweight recently," said Maarten-Jan Bakkum, senior emerging markets strategist at NN Investment Partners, in an email from The Hague, Netherlands.

“We continue to think that India is better positioned than most of its peers in the current global environment. Low exposure to global trade, manageable twin deficits and strong credit growth dynamics are the main positive factors," he said.

FIIs have been net sellers of Indian equities totaling $939 million since the start of this year until 12 September, showed data from the Securities and Exchange Board of India.

While investors said they liked Indian markets, some did not agree that the deficits were really manageable.

“We continue to believe that while underlying growth in India is quite respectable, Indian markets remain vulnerable to the twin deficits: fiscal and current account," Krishna Memani, chief investment officer at US-based Oppenheimer Funds, said in an emailed response on Friday.

He said the current account deficit is not unreasonable relative to the level of growth; however, in the current global context, it requires careful and sound fiscal and monetary policy to ensure that the rupee does not depreciate too much, and lead to higher levels of inflation.

“We are hopeful that policymakers will do precisely that and therefore continue to like the Indian markets," Memani added.

Finance minister Arun Jaitley on Friday unveiled steps to boost market confidence, curb the widening current account deficit and stabilize the rupee, after a marathon meeting with Prime Minister Narendra Modi to discuss the economy.

Jaitley said the decisions were taken to address the issue of current account deficit, which touched 2.4% of gross domestic product in the June quarter.

However, there are concerns that the monetary policy committee may hike rates at the upcoming policy meet in October on the back of firm crude oil prices, and sharp volatility in rupee.

The measures failed to soothe the sentiment for the rupee. Indian rupee continued its downward journey and fell further against the dollar on Monday.

Hugh Young, managing director at Aberdeen Standard Investments, said there were some great companies in India but it was one of the most expensive markets in which his company invests.

“We’re still long term believers but would dearly love prices to be much lower," Young said in an e-mail from Singapore on Monday.

A few changed their stance on Indian shares.

Though Indian shares were not a sell or underperform as yet, Goldman Sachs downgraded them to marketperform from outperform over the weekend, saying that risk/reward is less favourable at current levels, given the elevated valuations and recent strong performance.

“We have been strategically overweight India since March 2014 as we expected pro-growth government policies and structural reforms to drive a pick-up in economic growth and a recovery in corporate profits," Goldman Sachs analysts said in a note on Sunday.

While earnings have improved, Indian equities have almost doubled over the past five years and outperformed the Asian region by 60 percentage points in dollar terms, the investment bank said. “At current levels, we believe the risk reward for Indian equities is less favourable and we lower our investment view from overweight to market-weight," they said.

“The key reasons for our less optimistic view include, among others, stretched valuations, multiple macro headwinds in the near term and election event risk," Goldman Sachs said, as it expects markets to consolidate heading into 2019 general elections and Nifty to reach a 12-month target of 12,000 as political uncertainty wanes and earnings accrue.

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