Indian stocks world-beating as indices hit all-time highs
With benchmark indices BSE Sensex and NSE Nifty 50 hitting new life-time highs, foreign portfolio investors (FPIs) in Indian equity markets have made a killing. The 30-share index and its broader counterpart have given year-to-date(YTD) return of 13.17 per cent and 14.24 per cent respectively. The actual gain is an astonishing 19 per cent if one takes into account 5.66 per cent appreciation in rupee’s exchange value against dollar.
Riding corporate earnings and gains in Asian markets, the BSE Sensex rose 0.6 per cent to close above 30,000 for the first time, Nifty 50 advanced 0.5 per cent. According to Bloomberg, Sensex has rallied 13 per cent so far this year, the best-performing equity benchmark among the world’s 10 biggest stock markets.
The domestic currency’s top performance is the icing on the cake. The rupee has been resilient, thanks to India’s solid economy and a reasonably prudent and neutral monetary policy and sound external accounts. Among Asian currencies, the rupee is next to peso of the Philippines only. The rupee touched a 20-month high against the dollar on Wednesday, rising to 63.93 intraday before ending the day at 64.11 on sustained fund inflows.
Foreign portfolio investors have pumped in a whopping Rs 56,261 crore in equity and debt markets in March. In April so far, it stood at Rs 22,135 crore.
Shrikant Akolkar, senior equity research analyst, Angel Broking said, “Rupee appreciating against the dollar, it’s very positive for the foreign investors, they are going to make more money than the domestic institutional investors in dollar term.”
“Foreign portfolio investors, who took a naked call on the Indian currency rather than fully or partly hedging the currency will get good money on their investment in equity and bond market,” Sarvana Kumar, chief investment officer, LIC Mutual Fund.

“If you invested without hedging, you would be getting around 19 per cent kind of return from the Indian equity market. This has been possible because of rupee strengthening due to higher foreign portfolio investors’ money pouring into Indian equity and debt markets post the five state assembly elections results, ” he added.
The Sensex traded at 17.5 times estimated 12-month earnings, the most since November 2010. Seven months of net purchases by local funds have boosted the valuations of Indian stocks to their highest level in more than six years.
“The rupee has been appreciating because our macros are very strong with over 7 per cent GDP growth, we are growing more than any other large economy, even China is growing at lower rate which is good for foreign investors looking to invest in India. Also the inflation is low, interest rate is lower now and lower crude oil is also helping Indian rupee become stronger. This is good for foreign investors who buy rupee while investing and sell rupee to convert into dollar while exiting from Indian investments,” Akolkar said
FPIs as they invest in Indian or any other emerging market take a 3 to 6 month forward cover to hedge currency risks. Sometimes FPIs on currency predictions also go for naked call rather than fully hedged call or semi-hedged call, which would fetch those FPIs higher return.
Strong company results show that the market has broken away from the shackles of demonetisation,” Jitendra Panda, managing director at Peerless Securities, said. “This milestone for the Sensex was long-awaited and with companies displaying momentum in the numbers, we expect better days ahead,” he added.


raviranjan@mydigitalfc.com
(With inputs from Bloomberg)
Columnist: 
Ravi Ranjan Prasad
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