Despite Satyam, FIIs eye India

Foreign institutional investors (FIIs) have started looking at India as an attractively-valued market despite the Satyam scandal.

Some of the FIIs such as Citi and Macquarie have increased the weightage for India, while Credit Suisse has said that the Indian market can go up by 30-40 per cent in 2009. This weightage helps investors decide the markets to invest. Generally, FIIs decide their allocations for the year in January.

Since December 2008, some hedge fund money entered Indian equities, and inflows continued till the first week of January. However, the fraud at Satyam led to a sell-off by the FIIs. From January 7 till date, FIIs have been net sellers in the secondary market to the tune of Rs 3,350 crore.

During the first four days of January (prior to the Satyam scam), FIIs bought shares worth Rs 1,056 crore.

Macquarie, which raised India’s weightage from 9.4 last year to 11.9 for 2009, said in its Asia strategy report, “We have downgraded the high-beta markets of China and Hong Kong from overweight to underweight. China has now become a consensus trade, its relative earnings risk is growing and, while the market is not expensive, in the past valuations have not been a good predictor of future performance for China.”

“We have upgraded India to an overweight. With India is now trading at a discount to Asia ex-Japan, earnings expectations slashed, and a tremendous amount of monetary stimulus in the pipeline, the case for India has improved dramatically recently,” it added.

Within emerging markets, Citigroup is underweight on India, but the the degree to which it is underweight is lower compared to last year. The weightage for India this year is 11.7 per cent, while it was raised for China to 32.7 per cent.

The reduced level of underweightage is not a big positive, a Citigroup report said.

“We remain underweight on emerging markets. Earnings momentum is weak, valuation is not compelling and the region ranks poorly on valuation.” Citi’s Asia strategist preferred North Asian markets such as Korea (24.5) and Taiwan (19.6) over China and India.

“2009 is the year that will see the real economy’s excesses being unwound. There will be pain, but the question is for how long?” said Aditya Narain, managing director and head-India research at Citigroup.

Contrary to what Citigroup says, Macquarie says that Korea and Taiwan remain key underweights, and has reduced their weightage.

Credit Suisse, however, is cautiously bullish on India.