Bright spot on global investors' radar

A 28 per cent spurt in the total market capitalisation of the Bombay Stock Exchange (BSE) in the last nine months has seen India becoming a force to be reckoned with among global portfolio investors.

The total market capitalisation of BSE has increased by Rs 1,29,852 crore owing to the four big initial public offerings (IPOs) between February 25 and November 18 this year.

These issues were floated by Tata Consultancy Services (TCS), National Thermal Power Corporation (NTPC), Biocon and Patni Computer.

Devesh Kumar, head of equity at ICICI Securities said, "The success of the recent large IPOs such as ONGC, TCS and NTPC has forced foreign funds to track the Indian markets seriously. The contribution to the Sensex free-float by these large-cap companies has attracted fresh investments by foreign funds in turn."

Market sources feel Indian markets have the potential to outperform other Asian indices in a medium-to-long-term period on the back of continued foreign inflows.

Net investments by foreign institutional investors (FIIs) in the equity markets had crossed $6 billion on November 9 with bulk of the money being invested in the recent public offerings.

The FII inflows are just half a billion short of the all-time high $6.6 billion in the whole of 2003.

From Rs 11,53,288 crore on February 25, the day on which the Patni issue hit the market, the market capitalisation has increased to Rs 14,77,050 crore on November 18.

Though India has not managed to match the returns provided by its peers in the Asian region in the last eight months, market sources say Indian markets can outperform their peers in a medium to long term horizon.

Jonathan Boyer of Boyer Allan, a UK-based hedge fund, recently told Business Standard: "Apart from the structural changes in the Indian capital markets, the increased depth - with the listing of large-sized companies and the mature future and option market -has attracted 'absolute return' fund managers like us to focus on India rather seriously."

Boyer Allan has launched an India-dedicated fund and has already collected $50 million overseas to invest in Indian equities.

Though the Indian equity markets have started performing well in the last six months, it still ranks fifth among its peers in the Asian region.

A survey of returns from key benchmark indices in the Asian region shows that the Indonesian Jakarta Composite posted a 26.62 per gain between April 1, 2004, and November 17, while the Sensex managed to post returns of 4.8 per cent.

Following the Jakarta Composite is the Philippines' PSE composite, with returns of 25.21 per cent, Singapore's Strait Times at 9.39 per cent, Hong Kong's Hang Seng at 9.06 per cent.

Falguni Nayar, executive director of Kotak Securities said: "The Indian markets are integrated with the global markets now, though the integration is restricted to specific sectors such as commodities, petrochemicals and information technology. Going forward, among the emerging markets, India and Korea will continue to attract huge inflows as they offer a lot of growth stories in the mid-cap segment. The mature futures and options segment in India further attracts a lot of hedge funds to invest in Indian equities," he said.

Andrew Holland, chief administrative officer and executive vice president-research, DSP Merrill Lynch, said: "India will continue to attract strong FII inflows with the economy growing at six-seven per cent, one of the fastest growth rates in the Asian region."

"With integrated global markets, lower oil prices and a weak dollar, the stage is set for stronger inflows into the emerging markets, with India will be among the biggest beneficiaries."