Foreign flows accelerate as India gains weight

In the first three months of 2017, the Indian markets have mopped up more foreign flows than other emerging markets (EMs). Domestic stocks, so far this year, have attracted over $6 billion of flows, more than South Korea ($5.5 billion) and Taiwan ($4.7 billion).
 
Analysts say, the bulk of the flows is on account of exchange-traded funds (ETFs), and not active investments. They say India’s weight in the EMs and Asia (excluding Japan) indices has gone up in recent months, which is responsible for the increase in pace of flows.
 
On a 12-month basis, however, Korea and Taiwan have got more flows than India. Last year, several funds had reduced their weight on Indian markets. A recent report by Kotak Institutional Equities, which tracks foreign fund flow in various markets, highlighted that India’s allocation in Asia (excluding Japan) and global equity market funds saw an uptick in February. The higher flows have also seen Indian markets emerge as the best-performing major markets globally. The benchmark Sensex went up 11 per cent in local currency and 16.5 per cent in dollar terms this year. In comparison, other markets have posted mid to low single-digit returns.  “Lower-than-expected demonetisation impact on activity and earnings, tailwinds from the global reflation trade and recent favourable state election results have all helped fuel risk appetite among investors,” said Sunil Koul, Asia Pacific portfolio strategist, Goldman Sachs.

The increased India allocation will support the markets, said analysts.