The Hindu Business Line : Global funds attracted by `low valuations'

THE country has become one of the hottest investment destinations for global fund managers this year due to under-valuations of Indian equities compared to those in other equity markets.

However, India is not the only country in Asia, which has seen heavy inflow of foreign funds. Countries such as South Korea, Taiwan and China have also been witnessing similar trends.

According to Emerging Portfolio.com Fund Research, which is tracking equity and bond funds with more than $1.2 trillion in assets, said low valuations on a historical basis and the cyclical nature of most Asian markets have encouraged foreign funds to put a considerable amount of the fresh money throughout Asia and some have even been selling equities in markets such as Mexico to divert investments to Asia.

The increased interest in Asia is also seen from the MSCI Asia index rising 37 per cent this year.

The research firm said that this year Taiwan received the highest foreign inflow of around $19 billion followed by China of $8 billion, Korea slightly over $5 billion and India marginally below $5 billion.

Stockbrokers said India was turning out to be the biggest beneficiary of foreign fund inflows due to the low valuations. Their main argument for heavy inflows is that several of the big foreign investors are likely to increase their weightage of India.

Big foreign investors who have turned active in India include Fidelity, Emerging Market Growth Fund, BatteryMarch Financial Management, Vanguard Investments, Templeton and Government of Singapore Investment Corporation. According to brokers, these FIIs have put in large amount in the Indian equity markets over the past few months.

In just 12 trading sessions this month, FIIs have pumped in $1 billion in Indian equities and their investments since the beginning of August amounted to $2.42 billion.

A top official of a foreign broking firm said some of the big foreign investors globally manage billion of dollars in financial assets and even if 0.25-0.5 per cent of their funds move to India, it will be a large amount for India and for the foreign investors it will still remain a small exposure in India.

One key factor for increase in exposure in India of foreign funds is the growing economy. This year, the GDP is expected to grow over six per cent, the second highest growth after China in this region.

Analysts said till now South Korea had received one of the highest inflows, but this might slow down due to weakness in its economy. The research firm said South Korea had received $904 million in net buying over the last three months (July-September) despite the economy falling into a technical recession in the second quarter of this year.

There are also talks that MSCI is likely to increase the weightage of India in the emerging market index, which may, in turn, lead to higher inflows into India mainly due to higher free-float for more companies in India.

MSCI follows the free-float methodology for assigning weights to different countries in its Index. A country with higher free-float has higher weightage and vice-versa. In 2001, when the firm moved to free-float methodology, the weightage of India came down as the free-float was low in India, but thereafter several companies have increased the FIIs investments resulting in higher free-float.

Article E-Mail :: Comment :: Syndication

Stories in this Section
BSNL goes festive with 60-70% cut in ISD rates

Airlines flying into `open sky'

Global funds attracted by `low valuations'

Profit-booking snaps rally; Sensex down 78

ABN Amro enters home loans with 'super saver' offer