The Hindu Business Line : Indices may head north, thanks to funds from East

THE overseas fund flow dictated bullishness in the market last week as predicted in these columns. This week also the cash-driven upward trend in the indices is likely to continue in view of serious emerging Japanese interest in Indian equities.

In the global funds business, more funds follow a strong trend. If the Japanese are taking positions in equities, the existing US, European and Australian investors would not like to be left behind. After a normal churning and profit-taking, the existing overseas investors would return with vengeance and even at higher levels, if supplies are mopped up.

In the short-run, the supply of equities for long-term investments would be limited. The general and acceptable assumption would be that the top 50 to 100 stocks would be on uptick. It is clear that the several billion dollars India-dedicated funds raised from Japan in the first flush would not be rushed through in a matter of weeks.

But the initial fascination for sector-specific stocks such as commodities, IT, auto and auto ancillaries and banking are well within conservative investment strategies.

It would be interesting to watch the difference in the valuation matrix for a whole new group of investors.

Granted that the investments would come through seasoned global fund mangers and long-time India hands, the responses to valuations, returns and growth premium are bound to be different going by the distinct Japanese investment psyche.

For the Japanese, it is also crucial that this new India gambit works. Japanese experience in foreign direct investment in the country in the early 1990s had not been very enchanting. The Japanese investors, who were stung by frequent policy changes and the strength of red-tape, may have an added incentive for investment through Singapore, which is going to formalise a comprehensive economic cooperation treaty, with a window for avoiding double taxation, this week.

According to sources in the Union Finance and Commerce Ministries, enough precautions have been taken to plug the loopholes in the business treaty so that allegations of misuse of the provisions are not repeated as was in case of the Mauritius treaty.

The wholesome treaty is also likely to step up South East Asian portfolio investments, particularly from Singapore. The Singapore government investment arms have already invested in a number of Indian equities.

The fact that the OCBC group - the S$119 billion Singapore/Malaysian financial major - has set its eye on Indian equities through an India-specific fund for the Japanese investors, is an indication for things to come in the future. Nomura, one of the biggest Japanese broking-investment outfits, would also be beginning to route investments into the country through its first India fund. This proves that albeit a modest one, it is a serious beginning for new money to come into Dalal Street from the East.

In a scenario of money chasing equities, alarming rise in the crude prices and a perception of deficient monsoon get easily discounted. The mid- and small-cap stocks have also moved up last week in the contagious sentiment of buoyancy.

However, a correction is always on the cards. But chances are that this week a deep correction may not happen as very few would dare to fight the trend. The intra-day volatility, however, is likely to keep the market-timers on their toes.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
More security breaches in US, says Forrester

Anil Ambani assumes charge at Infocomm, reconstitutes board

$12-b chip unit coming up in AP

Left parties not to attend coordination meetings

LNG from Iran: Deal depends on access to liquefaction tech

Indices may head north, thanks to funds from East

`Temping' on the rise; recruiters seek changes in law

Finance Ministry, RBI differ on FDI in asset reconstruction cos

Punitive liabilities for data theft, loss — BPOs faced with higher insurance premiums

Trade council set up to involve States in export efforts