New FII registration activity continues to be healthy: Ashish Mishra

Interview with Head securities services, Citi India

The Indian market is going through a turbulent phase with foreign investors pulling out nearly $1 billion (Rs 6,760 crore) in past two weeks. But the pace of new registrations by foreign institutional investors (FIIs), through which almost a third of foreign money coming to the markets is routed, hasn’t been impacted. As and when investor sentiment improves, India will be a big beneficiary, says Ashish Mishra, head securities services, Citi India, tells Samie Modak. Edited excerpts:

India and global markets have witnessed a significant sell-off. Did you anticipate this?

In many ways what is happening is a continuation of what happened in the latter part of 2015. Right now investors have multiple concerns surrounding emerging markets (EMs), what is happening with China and the currency devaluation. All of this leads to a risk-off sentiment towards the EMs, and India gets impacted too.

However, from a domestic point of view, two large themes have remained unchanged. One is the growth of domestic institutional investors. We have seen the pickup in domestic mutual funds activity. Their investments have helped offset foreign investor sell-off. That theme remains a positive sign. The second theme is the expectation of reforms. That again continues.

Last year, we saw a slowdown in foreign inflows compared to the previous year. What is the trend likely to be this year?

2015 was a mixed bag. The first half was different from the second. Again, a lot of it was driven by EM factors. From the 2016 point of view, what happens in India will be a function of both what happens to EMs as well as India-specific factors. India is still viewed as the brightest investment destination globally.

Leaving aside the FII net investment number, a lot of other data bear that out. India’s gross domestic product (GDP) growth rate, forex reserves, current account deficit and currency performance are all healthy. So, India is still a great investment destination. But, we do get impacted and clubbed with EMs. As and when the flow trend will reverse, India will be a big beneficiary, as investors tend are overweight on India, versus other emerging markets.

What are the key triggers foreign investors would be eyeing?

Investors will be interested in what the government does through executive decision-making or steps initiated through the Budget. Eventually, they will also look for revival in corporate earnings. The investment push in the roads, power and infrastructure sectors will be crucial. So, there are different triggers and all of them have the potential to translate into investment activity.

With a threat of further currency devaluation by China, do you think FIIs will choose to remain cautious?

From what our clients tell us, currency is definitely one of the factors investors watch out for as they look at dollar-adjusted returns. So, currency becomes a factor in what they get as returns. But so far the Indian rupee has been performing well. What China does on currency has an impact on EMs, including India. So it will continue to be a factor.

Citi is a major player in the custodian business. Have you seen any dip in foreign investor registration activity?

We haven’t seen any downtick in registration of new accounts. The trend remains healthy and Securities and Exchange Board of India (Sebi) data also points towards this. The July to September quarter was stronger than the two quarters before it. December quarter saw a marginal decline but this is attributable to the holiday period. So, we haven’t seen any dip in new registration activity. This is another indication that people are interested in the Indian market. And when investment opportunities are right, they will translate into flows.

What are the trends on the debt side?

The fixed income story has been different from the equity one, from a net inflows point of view. Inflows into fixed income in 2015 were close to $8 billion (Rs 54,068 crore). So, debt continues to be a strong story. Even the recently opened limits got lapped up. Also, investors in fixed income tend to be different from investors in equity. That continues to be a good growth story.

Will that change with US bond yields rising?

From what our clients tell us, as a general principle, we could see an impact. But, we need to see the corresponding impact on yields of multiple factors including if the Reserve Bank of India cuts rates further, or if the US Federal Reserve again does something in the first half of this year. The rate differential will be a factor for people to decide how much to invest.

With oil prices crashing, are we seeing flows from oil producing countries getting impacted?

It is difficult to ascertain if an entity is selling because of that. As a long-term trend, it is something to look out for. We don’t think anyone is directly shrinking their investment because of the fall in oil. On the contrary, we do have a few clients who continue to increase their India allocation. Maybe it is part of rebalancing — taking out from other markets and investing more in India.

Any interesting geographical trends?

If you look at foreign portfolio investment registration analysis, we have seen a couple of jurisdictions picking up. We do see an increase in share from Canada and Ireland. The traditional top jurisdictions remain the US, Mauritius, Singapore and Luxembourg.