FIIs brush off valuation fears, fuel market rise

Net buys cross $3 bn this month to propel Sensex close to 20k.

The rush by foreign investors to buy into the India growth story continued on Monday, helping the Bombay Stock Exchange (BSE) Sensex inch closer to the psychological 20,000-mark.

Foreign Institutional Investors (FIIs) have net bought Indian shares worth $3.05 billion (Rs 14,158.60 crore) in September so far, taking their net investment in the domestic market this calendar year to nearly $16 billion (Rs 73,540.40 crore).

In the same period, the 30-stock Sensex has gained 10.77 per cent, or 1,934.98 points. “Foreign investors are moving to safer emerging markets like India,” explained Pauli Laursen, who oversees Indian equities at SydInvest Asset Management in Copenhagen.

Experts said it is a liquidity-driven rally, as India’s growth is a compelling story for global investors. A large part of foreign money in the last few sessions has come from India-focused exchange-traded funds (ETFs), which try to mimic the movement of indices like the MSCI India, Nifty or Sensex, experts said.

Flows into India-focused equity funds, which include ETFs, hit an eight-week high in the week ended September 15, according to EPFR Global, which tracks fund flows in global markets.

On Monday, the 30-stock Senses closed at 19,906.10, up 311.35 points, or 1.59 per cent. The 50-stock Nifty of the National Stock Exchange closed up 95.50 points, or 1.62 per cent, at 5,980.45. This was the highest finish for both indices since January 15, 2008.

According to provisional data available with the BSE, FIIs bought shares worth Rs 1,792.64 crore in the cash market on Monday, while domestic institutional investors (DIIs) were sellers to the tune of Rs 457.91 crore.

That FII money is driving stock prices is evident from the fact that DIIs, , including mutual funds and insurance companies, sold shares worth Rs 4,845.15 crore in the cash market this month so far, revealed BSE data.

Experts said India was among the more expensive markets, with stock indices now quoting at 21 times earnings for the trailing 12-month period. Shares are also trading at a significant premium against other emerging markets. “But it has always been so,” said SydInvest’s Laursen.

“In the short term, valuation is not the problem if you believe that India’s economy is strong,” he added.

Others, however, are concerned. “Given how illiquid our markers are, a small amount of money can push them higher,” said Saurabh Mukherjea, head of Indian equities at Execution Noble. “At 19 times forward earnings, markets are by and large overvalued. Investors should be wary at these levels,” he added.

India’s GDP rose 8.8 per cent in the quarter ended June 30, its fastest pace in two-and-a half years.

FMCG was the leading sector on Monday , witnessing a rally after a long time. The FMCG index surged 3.5 per cent on the back of a sharp spike in ITC and Hindustan Unilever, which rose 5 per cent and 4 per cent, respectively.

Telecom also buzzed, with Reliance Communications rising 5.3% and Bharti Airtel up 2 per cent.