Market sees best-ever January flows

Last Updated: Wed, Jan 30, 2013 04:50 hrs

The market is set to witness highest-ever foreign institutional investor (FII) flows in January led by improvement in investor sentiment globally and action from the government to improve the macroeconomic conditions.

With just two trading sessions left this month, overseas investment into Indian stocks is already at a record $3.6 billion (Rs 19,715 crore), surpassing the previous best January inflows of $2.18 billion seen last year.

Analysts believe foreign flows into the Indian market will continue to remain healthy as global risk appetite of investors is rising and government action is likely to bring down the fiscal deficit and improve economic growth.

FII net equity investment
Month Rs crore $ mn
Jan,2005 1,245.60 285.60
Jan,2006 3,368.40 753.30
Jan,2007 160.30 41.40
Jan,2008 -17,226.90 -4,368.20
Jan,2009 -4,250.20 -869.40
Jan,2010 -1,137.00 -230.59
Jan,2011 -6,330.30 -1,387.15
Jan,2012 11,089.50 2,183.35
Jan,2013 18,122.10 3,329.31
Compiled by BS Research Bureau
Source: SEBI

"Some of the government's reform measures have been implemented...Going forward, the announcement of more policy measures and implementation of those already announced could turn out to be significant catalysts," said Manishi Raychaudhuri, head of research at BNP Paribas, in a report.

"Strong FII flows since January 1 indicate that investors continue to keep faith in India," said Abhay Laijawala, head of research at Deutsche Equities India, recently. "Foreigners are getting excited over the government's steps to stoke the economy. They are looking at India very attractively."

Interestingly, foreign investors have been net buyers on all the twenty trading sessions this month, averaging nearly $150 million (Rs 1,000 crore) every day.

The benchmark Sensex, however, has risen just three per cent to 19,990.90 so far in 2013. Last year, the market had gone up 26 per cent with FIIs pouring in $24.55 billion (Rs 1.29 lakh crore) into equities. In 2012, India attracted the maximum flows in Asia and this year too, it has got more than its fair share of flows.

"Indian equities are at a crossroads. On one side there are potential catalysts for further upward movement. On the other, post significant outperformance, India appears fully valued relative to its own history and slightly overvalued relative to peers in Asia," he added.

The easing of monetary policy by the Reserve Bank of India (RBI) is also expected to bode well for the market. The central bank on Tuesday cut the policy repo rate by 25 basis points (bps) and also reduced the cash reserve ratio by 25 bps.

"RBI policy stance has clearly moved towards addressing concerns about growth, which is a very positive sign. This could be a beginning and there can be more rate cuts this year. RBI's easing, coupled with continuing fiscal reforms, will definitely help the process of accelerating economic growth," said Nirmal Jain, chairman, IIFL.

Most brokerages expect the market to rise 10-15 per cent in 2013 provided the government is able to contain the fiscal and current account deficits and also global risk sentiment remains intact.

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