Foreign funds, who have been net sellers in the India market in four out of the past five months, may return to Indian markets as worries over demonetisation effect are receding.
Foreign portfolio investors were net buyers in February to the tune of Rs 10,485 crore after selling close to Rs 32,200 crore in October-January period.
“With demonetisation effect fading away and macro data turning positive, a lot of overseas investors, who held back their investments, are now looking at the Indian markets positively,” said Vikram Dhawan, director Equentis Capital.
According to experts, the fund allocation to India by investors, the global emerging markets funds and hedge funds will be robust in the current year. Interest from hedge funds in the Indian market is growing according to a recent survey by Credit Suisse. It said that global investors are focused on emerging market exposure this year, including a particular focus on Asia Pacific and India.
In January, fund allocation to India by GEM (global emerging market) funds remained around 11 per cent, while allocation by Asia ex-Japan ETF funds to India remained around 8.9 per cent and allocation by GEM ETF funds has remained at 9.3 per cent in January.
According to analysts, GEM funds saw an inflow of $336 million (driven by ETF inflows of $315 million) while India-dedicated funds saw $207 million of inflows (dominated by non-ETF inflows of $ 228 million).
An analysis showed that FII ownership continues to rise in mid-caps. There is a rise in FII positioning in mid-caps in the June-Q (ownership up from 18 per cent to 19 per cent). However, in the October-December period, FII holdings in top Indian companies fell to a 10-quarter low as their holding in the BSE 500 index dropped to 18.88 per cent in the December quarter — down from 19.82 per cent in the September quarter, the lowest since the quarter ended 30 June 2014.
FII selling was seen across sectors except energy. The FPI ownership (including ADR and GDR) in the BSE-200 Index came down to $305 billion in the December quarter from $337 billion in the September 2016 quarter. In percentage terms, FPI holdings declined to 24.2 per cent compared to 25 per cent in the previous quarter.
“FIIs have been pulling out money from emerging markets, and the money is going back to America. All this is on the back of recovering US economy, the firming up of 10-year US bond yield, expectations of Fed rate hikes,” said an analyst with a leading brokerage house.