Indian markets witness worst January start in terms of foreign fund flows

Indian markets have witnessed its worst January start in terms of foreign fund flows since 2008 when global financial crisis roiled stock markets, but fund managers believe the tide may turn as global central banks are assuring enough liquidity in financial markets with their monetary stance. The Bank of Japan’s move to keep interest rate negative, hopes of stimulus announcement by the European Central Bank (ECB) in March, and postponement in interest rate increase by the US Federal Reserve may stem global fund outflows from emerging markets, including India said analysts.

The foreign institutional investors (FIIs) have offloaded shares worth Rs 11,126 crore in January, the month when most global money managers make decision on fund allocation to various markets and asset classes. However, India will continue to retain its overweigh rating among global fund houses in 2016.

“The global central bankers such as Bank of Japan (BoJ), European Central Bank (ECB) and US Federal Reserve are creating a constructive environment with their monetary policies. We believe their efforts will boost sentiments in financial markets and soon global fund flows will turn positive,” said Gopal Agarwal, chief investment officer at Mirae Asset Global Investments.

Among the emerging markets pack, India recorded second highest outflows worth $1.81 billion in January this year, after South Korea which witnessed outflows worth $2.3 billion, while other markets such as Taiwan saw outflows worth $1.78 billion and South Africa $808 million over this same period. However, fund managers believe India’s growth story and attractive valuations will make India as one of the most favourite destination in emerging markets.

"The absence of foreign fund inflows is matter of concern for near term, but if one believes India’s long-term story then it’s a buying opportunity, because the index is trading around 15.5 times to its one-year forward earnings, which is around the long-term average," said Gautam Sinha Roy, fund manager at Motilal Oswal AMC.

The benchmark index, BSE Sensex has dropped 4.77% in January, and has outperformed MSCI Emerging Market Index which has declined 9.06%, while other major countries such as China's Shanghai Composite Index’s has plunged 22.65%, while Brazil's Ibovespa Index plummeted 9.94% over the same period.