India draws more FII funds than Asian peers

Foreign institutional investor inflows into India are relatively healthy compared with that into the rest of Asian countries.

According to FII sources, a reversal in the trend is unlikely against the backdrop of a US economic slowdown and SARS concerns.

In the first five months of calendar 2003 (January-May), FII inflows into India were approximately worth $540 million.

But due to disappointing overall market conditions, the Bombay Stock Exchange sensex was down 2.2 per cent.

During the same period, FII fund inflows into Thailand were a meagre $42.5 million. This was against inflows of $85.9 million in the first quarter. The reduction in the five-month figure was owing to FIIs pulling out funds in the last two months.

Philippines has seen lower inflows at $1.1 million during the first five months, despite a 1.6 per cent rise in its stock index.

Similarly, Indonesia saw fund inflows of $20.1 million against a 27 per cent rise in its stock index, the highest among all Asian stock markets during the first five months.

Korea, despite witnessing a rise in its major stock index (KS11) by 7.02 per cent, saw fund outflows of $1,231.3 million.

The Taiwan stock exchange was the only one to saw higher FII inflows than India at $2,659.7 million. However, the index was down 10 per cent.

In the first quarter (January-March), FII fund inflows into India was approximately worth $350 million, while it was at $1,071.5 million in Taiwan.

FII sources say that there is re-allocation of funds within the region and India is going to benefit from this trend.

Further endorsing this view is the latest UBS Warburg report titled 'India Q203 strategy', which says that FII fund inflows into India, though down 40 per cent on a year-on-year basis in the first quarter, appear relatively healthy at $350 million compared with the rest of Asia.

"This is based on perceptions that India is a 'safe haven' against the backdrop of continuing economic slowdown in the US and SARS concerns in the East and South East Asia," the report says.

"Until there is a reversal of these concerns" the equity research firm is of the opinion that the pattern of India benefiting from a slowdown in FII fund inflow into other Asian countries could continue.

FIIs are also showing renewed faith in Indian markets as they are viewing the developments on the monsoon front favourably and the fact that India's relationship with Pakistan could improve.

This, coupled with the Indian economy not doing too badly, the expectation of returns on equity increasing is compelling second looks.

Another reasons for the positive outlook are the Indian economy's expected growth rate for 2003 is above average at 6 per cent, and India's success in attracting outsourcing contracts from developed markets.