Foreign funds poured more money into emerging markets such as China, South Korea, Brazil and Taiwan than into India in January. These institutional investors, including emerging market funds and exchange traded funds, invested $1.3 billion (Rs 6,920 crore) in Indian equities in January as net asset allocations into the nation’s stocks declined from the previous month.
China recorded the highest foreign fund inflows of $5.6 billion in January among emerging countries, according to Kotak Securities. Brokers said funds might have reduced net allocations to India as the Sensex had risen almost 25 per cent in 2012, driven by foreign institutional flows to the tune of $25 billion.
The Kotak Securities data on foreign fund inflows, sourced from US-based fund flow tracker EPFR Global, is different from that of the Securities and Exchange Board of India (Sebi) because the market regulator’s data also covers a wider range of foreign investors, including pension and sovereign funds. But market watchers track the foreign fund flow data by EPFR closely because countries such as China do not disclose foreign institutional investor (FII) flows.
Sebi data shows FIIs put in a little over $4 billion into Indian stocks in January. The unabated FII inflows raised concerns over whether the nation’s equities are overbought by foreign investors.
India looks the most overbought by FIIs at 1.7 per cent of the market cap, going by the ratio of net foreign buying over the past 12 months as a percentage of market capitalisation, said Credit Suisse in a recent report.
“Most investors we have seen over the past two weeks are still concerned about the risk of a tactical correction, so we once again look at one of our favourite indicators for this – net foreign buying. We judge markets as overbought by foreign investors,” said Sakthi Siva, Credit Suisse’s head of Asia-Pacific and global emerging markets equity strategy, in a client note.
South Korea, which attracted foreign fund flows worth $2.8 billion, is best poised to attract more FII inflows in the near future. “Korea looks the least crowded on this measure, with cumulative net foreign buying at just 0.2 per cent of market cap over the past 12 months,” said Siva.