Mumbai: India is among the top performing markets in Asia in local currency terms, but in dollar terms, its performance has been rather unimpressive.

Foreign institutional investors (FIIs) have sold a net of $238.5 million of Indian shares so far this year, and have been net sellers in three of the first five months in 2018.

Around $1.5 billion of Indian shares were dumped by FIIs in May. India’s benchmark Sensex has returned 4.6% so far this year, the best among the major markets in Asia in local currency terms.

In dollar terms, however, it has shed 1.71%, lagging behind markets in Japan, Taiwan, Malaysia and Singapore.

The rupee has eroded 6.1% this year, but has still performed better than most major Asian currencies, except the Philippine peso.

“India is weak in dollar terms, but still better than any other emerging markets," Shankar Sharma, vice-chairman and joint managing director of First Global Securities Pvt. Ltd, said in a phone interview from Dubai.

“We like Indian small caps at this point of time," he said. “Currently, in absolute terms, India is an average market. For further market direction, we need to watch out how oil prices fare from here."

Oil prices above $75 a barrel along with a depreciating rupee have cast a shadow on Indian stocks.

“A gradual slide in the Indian rupee can be expected when considering India’s current account deficit and the sensitivity of it to the rising oil prices," said Lewis Jones, lead portfolio manager, emerging markets local currency and bonds strategies, at Netherlands-based NN Investment Partners.

“The central bank now has more buffer to be able to manage currency volatility when needed with foreign exchange reserves of $410 billion," said Lewis.

“More important concerns for Indian markets are how the inflation trajectory develops and how well the central bank manages inflation expectations, and whether fiscal consolidation continues," he said.

“These are factors that can help underpin India’s fundamentals as the external environment gets potentially more challenging," Jonesadded

Foreign institutional investors are focusing more on developed markets than emerging markets, said Sharma.

During the week ended 13 June, investors pulled money out of EPFR-tracked Emerging Markets Equity Funds for the fourth straight week, ahead of the US Federal Reserve’s latest 25 basis point hike in short-term interest rates, fund-flow tracker EPFR Global said in a note on Friday.

On the other hand, US shares and equities continued to receive inflows.

“Flows into US bond funds hit their highest level since early April and US equity funds extended their longest inflow streak since fourth quarter of 2016 during the second week of June as investors responded to above trend growth in the world’s largest economy and looked ahead to key meetings of the US Federal Reserve, European Central Bank and the Bank of Japan," EPFR Global said in the note.

Indian stocks’ relatively better performance in rupee terms has ensured strong interest from domestic investors, particularly mutual funds.

The collections by mutual funds through SIP, or systematic investment plans, in May were at a record high of 730 crore.

Domestic institutional investors have been net buyers of Indian shares for all months this year, and have infused a net of 54,955.24 crore in the asset class so far in 2018.

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