Foreign funds to keep off equities on muted earnings: BofA-ML

The economists also went public with their disappointment with RBI for keeping separate limits for foreign investors in G-secs

Muted earnings growth expected in the December quarter will keep away foreign investors from re-entering the Indian equity markets, Bank of America-Merrill Lynch (BofA-ML) has warned.

"Our equity strategists have forecast a Sensex profit growth of a tepid 7 per cent (up from 5 per cent last quarter) for December, despite favorable base effects...Delay in earnings recovery will likely push back a turnaround in foreign exchange inflows," it said in a note today.

The brokerage said it anyways expected a dry up in the flows towards the end of 2015 due to the Bihar polls and the first rate hike by the US Fed in eight years.

However, its economists do not expect the dip in foreign fund inflows to impact the balance of payment situation as it expects further dip in crude oil prices, which is trading at around USD32 a barrel now, a 12 year low.

In what can spell out to be more trouble for the country, the analysts expect a downgrade in the FY17 earnings forecast to 12 per cent from the consensus 20 per cent.

The economists also went public with their disappointment with the Reserve Bank of India (RBI) for keeping separate limits for foreign investors in G-secs.

"We are disappointed that the RBI is continuing to block a separate FPI G-secs limit of USD 6.6 billion of the USD 27 billion for long-term FPIs such as sovereign wealth funds, foreign central banks, insurance and pension funds," they said, adding USD 1.1 billion of this limit still remains unutilised.