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Foreign funds plough money into Indian shares

A stock market scandal, the high-flying software sector skidding to a slowdown, a faltering industrial growth and fears that India's biggest foreign investor might pull out-- these are some of the events that shook Indian investors, regulators and legislators in the first four months of 2001.

Yet foreign funds with deep pockets seem undeterred and have pumped money into emerging Asia's third biggest stock market by market capitalisation.

Official data show foreign institutional investors were net buyers in Indian shares of $340 million in April, boosting the January-April tally to $1.98 billion - exceeding the $1.53 billion in the whole of 2000.

"There has been a higher allocation to Asia this year, part of which has found its way into India," said Singapore-based Samir Arora, head of Asian Emerging Markets at Alliance Capital.

He said these were funds deserting the United States on fears of a slowdown and losses on Wall Street, but afraid to get into crisis-ridden Japan, and hence hunting for better returns in emerging Asia.

According to Lipper Asia Ltd, a Reuters global funds data company, investments by the 20 biggest fund investors in Asia soared to $615.8 billion in the January-March period, up from $354.3 billion in the same quarter last year.

But the country's stock market this year has been among the worst performers in the region. The Bombay benchmark index is down 10.92 per cent since the start of January, and is only ahead of Indonesia.

THE BUY LIST

The shopping cart shows pickings this year have been widespread, from technology where fund managers say valuations were attractive after the meltdown, to the old industrial firms they feel could ride the wave of a turnaround.

The Indian economy, number two in developing Asia by gross domestic product, is seen growing close by an average six per cent - the IMF estimates 5.6 per cent, the Asian Development Bank 6.2 per cent and the Reserve Bank of India 6.0-6.5 per cent.

Ajit Ranade, economist at ABN AMRO Bank, says India's large domestic economy, resilient to the global slowdown, could pull more funds into the country.

But a blizzard of stock market scandals, which revealed share price manipulation has unnerved some foreign investors.

"Weak regulation is a part of an emerging market risk, but that does not rule out caution," said an India strategist at a foreign brokerage.

Analysts say foreign fund flows are unlikely to be influenced much by events such as the Enron controversy, where the US energy giant is threatening to pull out of its $2.9-billion power project in Maharashtra.

Enron is India's single biggest foreign direct investor.

They say factors that influence foreign portfolio investments are different from the considerations that drive longer- term direct investments.

The Indian government's decision to hike foreign funds' investment limit in Indian firms to 49 per cent has also added to fresh buying in Indian software services firms.

"India's technology sector is still the best in the region. It has got low capital expenditure, no inventory, and increasingly their customers are outside the technology sector, in areas like banking, insurance and other industrial sectors," Arora of Alliance Capital said.

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