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| The good news, we all know, is that foreign institutional investors have powered the stock market rally since April this year. But is there bad news embedded in this good news? |
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| What if the FIIs decide that the $4.2 billion invested in India could earn even more elsewhere? Where does India feature in their list of best places to invest? |
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| The numbers tell us that India has not disappointed the FIIs so far. After underperforming other emerging markets miserably in the first four months of calendar 2003, the Indian markets rallied subsequently to make up for some of the lost ground. |
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| Result: India was up 42 per cent year-to-date, easily surpassing the 37 per cent gain in the Morgan Stanley Emerging Markets Free (EMF) Index. The country's position on the regional charts has also improved significantly. |
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| India ranks 14 among 27 countries in the emerging markets standard international index of Morgan Stanley Capital International (MSCI). Its position among 10 Asian (ex-Japan) economies is middling at number five. |
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THE BIG PICTURE
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| A look at the rear-view mirror cannot tell you what lies ahead. But most of the FII-related signals continue to be positive in the short and medium term. |
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| Estimates released by the US-based Institute of International Finance (IIF) around late-September suggest that the emerging markets should end the year with net inflows of $12.7 billion - with Asia-Pacific hogging the lion's share of $11 billion. |
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| 2004 looks even better. IIF forecasts net equity inflows of nearly $17 billion, with Asia-Pacific again taking a huge bite of the booty at $13.3 billion. |
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| According to emergingportfolio.com, which tracks 844 global equity funds across the region with $175 billion in assets, foreign fund managers have been buying Asian equities and selling Latin America. |
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| They have ploughed a net $2 billion into Taiwanese equity this year (till September). Korea, China and India were the other big draws. |
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| If there's money's for the asking, the other plus is attractive valuations. According to Morgan Stanley, India ranks No 5 in a field of 12 emerging markets in terms of price-earnings (P/Es) ratios for 2003 (P/E of 11.2). |
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| It is No 6 in the 2004 estimates (P/E of 9.8). Taiwan currently looks the most expensive market with a P/E of 18.5 for 2003. Based on 2004 earnings, Taiwan commands a P/E of 13.4. |
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| The MSCI World Index valuation estimate for 2004 stands at 17 while the Emerging Markets Free Index P/E is 10.8. Indian looks cheaper in comparison. |
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| Among the emerging markets that hogged the limelight this year with maximum flows, Taiwan and China look relatively expensive with forward P/Es of 13.4 and 12.2, respectively, based on 2004 earnings estimates. |
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| Meanwhile, India, Korea and South Africa still seem attractive destinations for investments with 2004 forward P/Es of 9.8, 8.8 and 8.9 respectively. |
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| Interestingly, India has given the highest return on equity (18.2 per cent) based on trailing 12-month numbers. South Africa and Thailand, with a return on equity of 16.8 per cent, stood second. |
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| While the pull of valuations helps, there is also a "push" factor at work for foreign fund managers. |
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Says Sanjeev Sanyal, senior economist for emerging markets at Deutsche Bank: "The foremost
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