Q&A: Cameron Brandt, Global Markets Analyst, EPFR Global

'Expect another strong year of FII inflows'

Indian equity markets were largely driven by FII flow in 2010. How do you expect the flow this year?
The elements are in place for another strong year. There is still over $2.8 trillion sitting in the money market funds we track, yielding next to nothing, and both US fiscal and monetary policy remain expansionary. Investors are turning sour on bonds in general; equity funds have the momentum. Last year, bond funds were on the up.

What do foreign investors expect in the new year?
Investors have been kicking the tyres a bit harder as the year winds down. The glacial pace of India’s reform story, its fiscal deficit (especially with states’ obligations) and vulnerability to higher oil prices could all become issues. There’s a definite move up the risk curve on, as they search for value and yield in the emerging market universe. The frontier equity funds we track have taken in fresh money at double the pace that BRIC equity funds have this year, and both Indonesia and Turkey have been hot. So, investors will be less forgiving of the bigger emerging markets such as India if they don’t meet expectations for earnings, GDP and public finances.

In the event of a US recovery, could Indian markets see slow growth in flow of foreign money?
Not in 2011. Trend growth in the US, assuming a balanced recovery, is probably no more than four per cent versus six-eight per cent for India. Even when the US economy was roaring along at full speed in 2005-07, investors were steering significant sums into emerging markets like India, in anticipation of their long-term growth stories.