India is on top of the world as money just pours in

Indian equities have been among the best performers across global stock markets so far in 2017 led by unabated fund inflows as investors bet the country is in a good position to lead the global economic recovery. Indian stocks trounced some of the best performers in the developed and emerging world such as the US, Germany, France, Hong Kong and Brazil.

The Nifty has returned 13.7% so far this year in local currency terms compared with Hong Kong's 11.16% or Nasdaq's 11%. Other emerging markets like China and Brazil have gained 7% in 2017, with China's stock market rising 1% in the same period.

The strong Indian performance is as much a factor of domestic and foreign flows due to relative weakness in some other markets. Foreign investors have pumped Rs 42,000 crore into Indian markets so far this year. But the game changer has been the flows from domestic institutions -mainly mutual funds. Domestic mutual funds have deployed nearly Rs 15,800 crore since January 1.



However, analysts remain cautious on the near-term prospects citing irrational exuberance.

“The sharp rally in stock prices, especially of companies with weak fundamentals and limited visible changes to financials and operations, makes us quite uncomfortable about the nature of the current rally,“ said Sanjiv Prasad, senior ED, Kotak Institutional Equities. “We are unable to fathom the bullishness of the market with respect to the mid-cap and small-cap names, which are seeing rapid increases in market capitalisation without any real changes in their fundamentals."