US investors show renewed interest in India: BofA-ML

The US investor outlook towards the Indian market has undergone a sea change following the reforms announced by the government and the latest round of quantitative easing (QE3) by the Federal Reserve (Fed).

Foreign broking firm Bank of America-Merrill Lynch (BofA-ML) after a 10-day investor roadshow in the US concluded reforms had revived interest in India.

“Clients sensed a change in the political environment in India and some investors, who earlier stayed away, were keen to understand the things to come,” said Jyotivardhan Jaipuria, head of research at BofA-ML, in a report.

QUESTIONS ON US INVESTORS' MINDS

• What are the future reforms and when can we see them coming?
• What are the chances of a rollback of the current measures?
• What will it take to get the investment cycle kicking in India?
• What are the chances of a rate cut soon?
• How soon can the earnings cycle change? Have margins bottomed out?

Source: BofA-Merrill Lynch

Jaipuria, part of the roadshow, however, felt buying interest from US investors was relatively muted compared to Asian investors.

“They thought the markets had run up too fast and preferred to wait for a correction,” he said in the report. “While everyone appreciated the reforms were a big step, the general feeling (among US investors) was that much more would need to be done before we could see the economy reviving.”

Recently, the government opened sectors such as retail and aviation for foreign direct investment. The Centre also increased diesel prices and introduced a cap on the use of subsidised LPG cylinders to rein in the fiscal deficit. This, coupled with stimulus programmes announced by the US Federal Reserve and the European Central Bank (ECB) have given a spark to risky assets like India.

Benchmark Indian equities have rallied more than seven per cent and the domestic currency has appreciated about five per cent against the US dollar since September 6.

Meanwhile, foreign institutional investors have invested nearly $3.5 billion in Indian stocks since the start of this month.

Jaipuria said most investors in the US showed inclination towards investing in rate sensitive and high-beta sectors in India. He added inflation was once again the focus as QE3 has raised the possibility of a spike in crude prices.