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India is likely to witness a surge in foreign portfolio investments in the wake of the Gulf war.
Currently, fund managers in Europe and America are raising their cash levels owing to the uncertainty of the US-Iraq conflict.
But the mandates to invest in equities will induce them to increase allocations to safer markets such as India and China.
"Investment managers cannot keep cash for more than mandated levels in a particular timeframe. If the uncertainties of war continue, they will be forced to take investment decisions about equities. Under the circumstances, defensive destinations such as India among emerging markets will serve the purpose," a dealer with a foreign brokerage house said.
Though India has not yielded startling returns compared with Korea and other Asian markets, the rate of negative returns has been the lowest.
China has been a defensive market for a few years now. But the lack of a secondary market and huge public offerings in mammoth companies in the last few years have seen foreign inflows only in the primary market.
"While FIIs generally invest in the primary issues of Chinese companies, at the secondary level India is attractive," S Nagnath, chief investment officer and joint president, DSP Investment Managers, said.
Most fund managers feel that the interest in India will rise, especially in case the war prolongs in the Middle East.
"The interest in India as safe emerging market is rising," Gul Tekchandani, chief investment officer, Sun F&C said.
Indian stock markets have registered a marginal gain against the huge losses suffered by major Asian markets in calendar 2002, thus making it a defensive bet.
While the Bombay Stock Exchange's Sensex gained 2 per cent during the calendar 2002, South Korea's Kospi declined by 16.22 per cent, Taiwan Composite fell by 24 per cent, Singapore Straits Time Index lost 25 per cent and China's SSE Composite declined by almost 26 per cent.
Foreign institutional investors, which have aggressively invested in Korea over the last couple of years, are feeling that the honeymoon may get over soon if the global economy does not improve.
The FIIs are apprehensive as Korean and Taiwan are highly export-driven economies. Countries having high export incomes are expected to deliver lower rates of returns given the weak dollar.
"India has been able to provide stability to the rupee which has helped in maintaining export competitiveness as well as confidence among foreign investors, including expatriates," Jignesh Shah, strategist, ASK Raymond James Investment Management, said.
The lure of safe havens