Volatility in domestic share market acting as catalyst.
High networth investors (HNIs) in India are increasingly exploring investment opportunities in overseas equity markets, following volatility in the local share market, according to fund managers of foreign and domestic private banks.
“Opportunities that did not attract much interest in the past, such as international investments, are becoming attractive,” said Vishal Kapoor, general manager of Standard Chartered Bank’s wealth management business in India.
| FII TRANSACTIONS | |||
| Transactions | Calendar year | ||
| 2008-09 | 2009-10 | 2010-11* | |
| Number of FIIs (actual) | 1635 | 1713 | 1718 |
| Number of sub-accounts (actual) | 5015 | 5378 | 5503 |
| Equity market activity (Rs crore) | |||
| Gross buy | 5,54,585 | 7,05,523 | 6,03,406 |
| Gross sell | 6,02,292 | 5,95,302 | 4,90,785 |
| Net | -47,706 | 1,10,221 | 1,12,622 |
| Debt market activity (Rs crore) | |||
| Gross buy | 59,993 | 1,40,914 | 1,54,081 |
| Gross sell | 58,098 | 1,08,477 | 1,29,241 |
| Net | 1,895 | 32,438 | 24,839 |
| Total activity (Rs crore) | |||
| Gross buy | 6,14,579 | 8,46,437 | 7,57,487 |
| Gross sell | 6,60,389 | 7,03,779 | 6,20,026 |
| Net | -45,811 | 1,42,658 | 1,37,461 |
| Note: *As on 31 December 2010 Source: Sebi/Economic Survey 2010-11 | |||
“For many years, even the savvy customers were of the opinion that India is offering the best growth opportunity for future. But this year, we are seeing a different trend. A lot of interest is being seen around the US and Japanese equities,” he added.
Fund managers reckon the volatility in domestic share market is likely to continue in the near-term on mounting worries over rising inflation and high oil prices. This had encouraged HNIs to scout overseas investment opportunities, they said.
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In the first two months of the calendar year, the Bombay Stock Exchange’s benchmark 30-share Sensex shed over 13 per cent, making it the world’s third worst performing benchmark index this year. The National Stock Exchange’s 50-share Nifty also shrunk over 13 per cent during this period.
Compared to this, the US’ Dow Jones Industrial Average gained 5.6 per cent while Japan’s Nikkei 225 rose near four per cent in January-February.
“The investment preferences of HNIs are slowly changing. The recent underperformance and volatility of the Indian equity market have played their parts, as investors realised the advantages of diversification and putting money in non-correlated or low-correlated assets,” said Ashish Kehair, head of wealth management business, ICICI Securities.
“We have seen interest in products that look at delivering absolute performance and have exposure across multiple asset classes globally, thus reducing the risk on investor’s India heavy investment portfolio,” he said.
In 2011, foreign institutional investors (FIIs) have been net sellers so far — withdrawing $2.06 billion or Rs9,398.60 crore from domestic share market, data available on the Securities and Exchange Board of India show.
“The upside impact of strong outflow has been diminishing during the October-December quarter, while the downside impact of only modest outflows has been rising in the current quarter,” said Aditya Narain and Jitender Tokas, analysts with Citigroup Global Markets in a recent note.
The unrest in West Asia and North African countries in the recent past have also seen FIIs pulling out of those markets and returning to politically more stable developed markets. It had also raised the return expectations from these markets, analysts said.
“If you have a reversal of FII flows to developed economies, perceived to be safe havens, it makes those markets quite attractive. HNIs in India also want to participate in the growth,” a top official of a Mumbai-based private bank, who did not wish to be named, said.
Fund managers said one of the routes to access equity markets abroad was to invest in a domestic fund, which feeds into a global fund having exposure to overseas markets.
“One can buy (units) in a local fund in rupee, which is actually feeding into a global fund. That becomes a convenient way to access global markets. We did a couple of such transactions,” Standard Chartered Bank’s Kapoor said.
Fund managers, however, warned that investors need to evaluate the risks involved with such investments.