India bucks FII outflow trend amid coronavirus scare, say analysts

The coronavirus outbreak has triggered risk-off sentiment among global investors, prompting them to pull out of equities fearing an adverse impact on earnings and economic growth. As a result, most emerging markets (EMs) have seen outflows or soft foreign institutional investors (FIIs) flows this calendar year. India, however, is an exception. So far this year, the domestic equity markets have seen foreign inflows of $3.5 billion, even as EMs are seeing the worst sell-off in four months. Markets, such as China, Thailand, Brazil,  and the Philippines, have seen the sharpest pullback. Analysts say countries with China linkages and also those dependent on tourism are the worst-hit.
 
On the other hand, they see markets like India benefiting as corporations try to rework their global supply chains.
 
“We recommend investors add exposure in automation, banks and industrials stocks in North America, India and Southeast Asia—likely beneficiaries of the shifts in supply chain,” says Bank of America Merrill Lynch in a note highlighting that supply chains worth $22 trillion market cap are on the move.
 
While the Indian economy faces headwinds in the form of slowing economic and sluggish corporate earnings growth, analysts say it is still safer. “With the issue of coronavirus emerging, India looks better than some other markets exposed to stuff like tourism,” says Saion Mukherjee, India equity strategist, Nomura.