The Hindu Business Line : Positive momentum may continue

STRONG SHOW CONTINUES: A file picture showing a broker closely watching the market trend on a terminal reflected on his specks at a stock trading house in Kolkata - A. Roy Chowdhury.

Indian equities market, billed as "the great bull market of the 21st century" by Mr Carl Delfeld, head of the global advisory firm Chartwell Partners, witnessed increased money flow last week.

Investors, here and abroad, appear undaunted by early warning signals over overheating.

Emerging market equity funds mopped up nearly $2 billion of net inflows in the week ending March 22, which signalled a resumption of strong investor demand for this widely favoured asset class, according to Emerging Portfolio Fund Research. The inflow follows the previous week's net outflow that was the first since November 2005. A significant amount of this fresh money is meant for Indian stocks.

This week steady flow of liquidity into select heavyweights and mid-cap stocks is likely to sustain the current positive trend in the indices.

In the first four days of the last week, FIIs and domestic mutual funds stepped up their investments. On last Monday, net investment figure of mutual funds at Rs 514 crore came close to the FII net inflow of Rs 550 crore, for the first time this. Hefty purchases in the cash market pushed the benchmark index; mid and small cap indices, however, performed better as anticipated.

In the first three months of 2006, as many as 59 new FIIs got registered with SEBI, signalling continuation of robust interest for participating in the rally. Not only the indices are moving up, but more and more listed entities are drawing attention of the investors extending the market breath faster than last year.

Different strokes

The investment practices followed by the fund managers of relatively new entrants are somewhat different from the one that entered earlier. In view of peak or near peak valuations of the top companies, they are obviously looking at mid-cap stocks more seriously than their older counterparts.

In terms stock picking, they are more flexible towards small cap stocks.

According to overseas fund managers, the overall risk, currency fluctuation and inflation adjusted return expectation by FIIs active now in India also moderated to a great extent in the last few months with entry of new players.

In the last three months, Indian benchmark returned roughly 3 percentage points more than Chinese benchmark index and about five times higher than S&P 500.

Retail appetite for Indian ADRs or GDRs have also been increasing in the US and Europe. The AIM segment of LSE is throwing strong indications for papers of small Indian companies.

Believe it or not

Footloose global money is no more bound by the conventional wisdom that US stocks and currency is the safest.

Burgeoning US trade deficit and its growing shadow over the future of US currency has made the international financial money managers look for opportunities in India where relative growth outlook is good. The market efficiency and size is also reasonable.

"India presents (global) investors with the opportunity of lifetime and its democratic government, stronger financial system, market-based interest rates and history of respecting property and intellectual rights may make it a better long-term play than China", Mr Delfeld recently advised.

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