Brokers said funds may have reduced net allocations to India as the Sensex has risen almost 25% driven by foreign institutional flows to the tune of $25 billion.
The Kotak Securities data on foreign fund inflows, sourced from US-based fund flow tracker, is different from that by Securities and Exchange Board of India (Sebi) because the market regulator’s data also covers a wider range of foreign investors including pension and sovereign funds. But, market watchers track the foreign fund flow data by EPFR closely because countries such as China do not disclose FII flows.
Sebi data shows foreign institutional investors put a little over $4 billion into Indian stocks in January. The unabated FII inflows raised concerns over whether the nation’s equities are overbought by FIIs.
India looks the most overbought by foreign investors at 1.7% of market cap going by the ratio of net foreign buying over the past 12 months as a percentage of market capitalization, said Credit Suisse in a recent report.
Foreigh fund flows into leading emerging markets in January
|Country||Fund flows ($-mn)||Main Stock index gains/losses (%)|
“Most investors we have seen over the past two weeks are still concerned about the risk of a tactical correction, so we once again look at one of our favourite indicators for this – net foreign buying. We judge markets as overbought by foreign investors,” said Sakthi Siva, Credit Suisse's head of Asia Pacific and global emerging markets equity strategy in the client note.
South Korea, which attracted foreign fund flows worth $2.8 billion, is best poised to attract more FII inflows in the near future.
“Korea looks the least crowded on this measure, with cumulative net foreign buying at just 0.2% of market cap over the past 12 months,” said Credit Suisse’s Siva.