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Foreign funds hint at hiking India allocation

25 Mar 10 10:38 AM
MUMBAI: Portfolio investors are positive on the India structural story. Foreign fund managers from GIC, Boston-based Mass Financial, Janus, T Rowe Price, Boston-based Wellington Management, Singapore-based Aberdeen Asset Management and Fidelity, which were recently in India, have indicated that they are looking for the right opportunities to match their India allocation.

Many have gone back to say that they are considering raising their India allocation, said a senior strategist at the India arm of a foreign brokerage. However, how soon this will translate into incremental flows will be difficult to say, he added.

The big fear so far had been that if the US raised interest rates, money would flow out of emerging markets, including India. After the Federal Reserve statement on keeping interest rates low, this is unlikely and viewed as a definite positive for fund inflows.

While most of these funds have been invested in India, with sufficiently large India portfolios, a few names such as that of the US-based pension fund TIAA-CREF are also doing the rounds. TIAA-CREF has been invested in India for more than a decade. The fund is said to be taking a relook at India.

However, equity analysts are concerned that a rise in interest rates by the Reserve Bank of India (RBI) to contain inflationary expectations could act as a dampener and lead to some of these funds adopting a wait-and-see attitude. Also, with a large tranche of Greece’s debt across various maturities coming up for expiry in April, Europe still remains a concern.

“We are very bullish on India over the medium-to-long term. While we are currently overweight on India, we may consider raising India allocations over the year, depending on how the next few months play out,” said Sam Mahtani, director, emerging market equities, at the London-based F&C Asset Management. “Our key high conviction stock ideas include Jindal Steel and Power, Ranbaxy and Axis Bank,’’ he added.

F&C has a $ 2.5-billion emerging market portfolio, with India’s share of the pie being $350 million. While the India portfolio is a diversified one, the four key themes include pharma, IT, financial services, and metals and mining.

Foreign institutional investors, or FIIs, have been net buyers of more than $3.2 billion of Indian stocks as on March 22. On a net basis bought $3 billion of shares in March alone.

India has a 0.96% weightage in the overall MSCI (World) universe compared to China, which has a 2.26% weightage. The MSCI India market cap is $233 billion vis-à-vis India’s market cap, which stands at $1.3 trillion. Interestingly, most portfolio investors are underweight on China.

The overall MSCI (World) universe on February 26, 2010, stood at $24.1 trillion, with 87.3% of it being the MSCI developed world and 12.7% the MSCI emerging world. The stance of institutional investors over the past few months has been one of cautious optimism. After the Federal Open Market Committee (FOMC) meeting this month, investors have moved from being risk-averse to a more neutral zone on emerging markets and India.

The perception is that while global liquidity will continue to determine future flows, India is holding out much better than the fundamentals warrant. Currently, most FIIs are marginally overweight on India.