FIIs to stay put

Unconcerned about the valuation of the Indian market, most foreign institutional investors do not see an early end to the bull run.

Half a dozen FIIs contacted by Business Standard after the BSE Sensex touched the 9000 mark Monday, said they would stay invested in the market.

All of them have substantial exposures to Indian equities. The list of FIIs playing on the Indian turf includes Goldman Sachs, Morgan Stanley, Merrill Lynch, Capital International and Oppenheimer apart from new emerging markets funds like Nomura of Japan.

None of the FIIs was willing to go on record. But, privately, some of them said that they would indeed stay invested in Indian market as corporate earnings prospects are brighter here than other emerging markets.

"This (9000) is a significant milestone and the single biggest factor behind this rally has been the liquidity flow. Considering the fact that India is among the fastest growing economies in the world, the valuations are still justified," said Nitin Raheja, CIO, Dawnay Day AV Financial Services.

"If you exclude the two other bulls runs (led by Harshad Mehta and the technology boom), Sensex valuations now are closer to the mean," he added. Dawnay Day is a UK-based financial services company. Its Indian arm advises overseas clients on Indian equities.

Another fund manager with a large US-based fund told Business Standard from Hong Kong: "There is life in Indian market. As the chances of interest rate hike by the US Fed recede, funds flow to India will intensify. We don't see any slow down (in Indian market)."

According to U R Bhat, managing director of Alphaplus Investment Management Pvt Ltd, even though the valuations are slightly stretched, it won't become a big concern.

"The outlook is positive for the medium-term, though short-term volatility cannot be ruled out. But that is unlikely to spoil the party," Bhat said. Most of the fund managers noted that the infrastructure spending in the country is higher compared to many other emerging markets, which makes it an attractive destination for foreign investors.

After pulling out close to Rs 3,700 crore in October, FIIs got back to the markets with a vengeance in November. Their total investments this month (till November 24, 2005) amount to Rs 2,877 crore or $643 million. They have been net buyers for the past eight sessions in Indian equities. "There is no sign that FII inflows will take a breather," said Raheja of Dawnay Day.

Andrew Holland, chief administrative officer and executive vice president, research at DSP Merrill Lynch, India, however felt that India continued to be among the most expensive markets compared with other emerging markets.

"The FII inflows in November have come as a bit of surprise after the October outflow. However, with a slew of public issues lined up, including that of ICICI Bank, we could see more inflows in the coming months," said Holland.

Mihir Vora, head of equities at ABN Amro Mutual Fund, said, "Global concerns about the prolonged state of interest rate tightening which prevailed since last two months have been fading and the signals by the Fed towards the end of the tightening have boosted sentiments."