Foreign investors pulled $657 million out of Indian equities this month
2 min read 25 Apr 2018, 11:19 PM ISTIn Asia, India faced the second-worst outflows after Taiwan, which saw outflows of $2.7 billion
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Mumbai: India stands alone among BRIC nations to see foreign fund outflows from its equity markets in April, with $657.5 million leaving its shores during the month so far on concerns of high valuations.
BRIC stands for Brazil, Russia, India and China.
In Asia, India faced the second-worst outflows after Taiwan, which saw outflows of $2.7 billion.
“Indian equities were among the most expensive in emerging markets, so there was little tolerance among investors once the global sentiment turned more negative (largely due to US events)," said Jan Dehn, head of research at London-based Ashmore Investment Management Ltd, which manages $76.5 billion of emerging market assets.
Currently, India’s benchmark Sensex equity index trades at 18.19 times one-year forward price-to-earnings ratio. In comparison, Brazil’s Ibovespa, China’s Shanghai Composite Index, and Russia’s RTS Index trade at 12.56 times, 11.68 times and 5.26 times respectively.
The Sensex hit a record high of 36,443.98 points on 29 January, but is down 5.33% since then at 34,501.27 points
“This is a technical and valuations correction, which may take a bit of time, but ultimately, the Indian story remains solid and we think investors should consider gradually increasing exposure..." said Dehn.
Earlier this month, political uncertainty before a spate of crucial state assembly polls later this year that may set the tone for next year’s national elections, and tepid earnings growth, prompted foreign brokerages to cut their year-end targets for benchmark indices.
Citigroup and CLSA have cut their targets for Sensex and Nifty for 2018, citing earnings downgrades and macro concerns, respectively.
For BNP Paribas, India is still one of the overweight markets—along with China, Korea and Indonesia—as growth recovery from the post-goods and services tax low seems to be in full swing, reflected in a V-shaped recovery in industrial production.
In a report on Monday, Manishi Raychaudhuri, Asia Pacific equity strategist at BNP Paribas, had pointed out that the recent inflation prints have also been benign, though the Reserve Bank of India (RBI) sounds hawkish about future inflation.
However, oil prices rose above $75 per barrel, propelled by production cuts from Organization of the Petroleum Exporting Countries (Opec), robust demand and the likelihood of renewed US sanctions on Iran.
This could hurt the fiscal math for India, which imports around 80% of its crude oil requirements.
“Among the macroeconomic risks, an oil price spike and the seemingly never-ending worsening of banks’ asset quality seem to be the risks that could puncture the Indian recovery story," Raychaudhuri said in the note.
On Tuesday, Brent crude rose to $75.27, the highest level since 27 November 2014.
The headache of burgeoning bad loans also continues to bother Indian banks, particularly the state-run ones.
“We also need to be cautious about volatility arising from Indian election outcomes – with a strong provincial election pipeline in 2018 and the general elections in May 2019," he added.
Five Indian states are due for elections before January 2019, and the general elections are likely by May next year.
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