 "FPI India allocation at historic high versus other EMs")
The MSCI Emerging Market index is made up of a number of developing countries such as Brazil, India and others. Foreign investors who wish to invest in such emerging markets often use the weight of each country in the index as a guideline to how much of their capital they should allocate to each nation. If they are particularly bullish on a country, they allocate more capital to it. This is called being Overweight the country (with respect to its index weightage).
A JP Morgan India Equity Strategy report authored by Bharat Iyer,Bijay Kumar and Adrian Mowat pointed out that such overweight positions on India has climbed to never before seen levels.
"FIIs are now overweight on Indian equities by more than 400 bps versus the benchmark (MSCI EM), a historical high. The positioning is reflective of the renewed faith in the growth potential, but also poses near term risks in the event of any significant global risk aversion," said the report dated 4th February.
Others too have pointed out the rising overweight positions.
"India OW is at an all-time high for GEM(Global Emerging Market) funds and the consensus bullishness creates the biggest risk to markets, in our view," said a Bank of America Merrill Lynch's 19th February India Equity Strategy report authored by research analysts Jyotivardhan Jaipuria and Anand Kumar.
Foreign investors are estimated to hold around a fifth of the total Indian equity market. They hold over forty per cent of the free float-or shares available to the general public.
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A February 5th Credit Suisse Securities India Market Strategy report authored by research analysts Neelkanth Mishra, Ravi Shankar and Prateek Singh noted that foreign institutional holdings remain largely concentrated in the blue-chip universe, with the top 50 companies accounting for 73 per cent of their holdings.
"Room for FII flows still exists. $159 bn of room in companies with ADTV greater than $ 2 mn. That said, we do not expect market performance to depend on flows," it said.
ADTV refers to average daily trading volume. Foreign investors generally invest only in stocks which meet a certain liquidity criteria.
India has received more capital than most other emerging markets in line with its performance.
"The flows are likely to remain strong as there is a lot of interest from institutional players. The ownership is only likely to go up," said Vikas Khemani, President and Chief Executive Officer, Edelweiss Securities.
Even the American central bank's expected rate hike is unlikely to have a significant impact on India-flows, according to Khemani. The United States Federal Reserve is expected to increase interest rates in line with an improvement in the US economy, this in turn may have an impact on the amount of money which flows into emerging markets from institutions which borrowed based on the prevailing low interest rate regime.
"India is likely to stand out amongst other emerging markets on account of the growth. One could see some re-allocation away from them and towards India on account of higher growth and flows could keep coming," he said.
Foreign portfolio investors or FPIs (earlier called foreign institutional investors or FIIs) have been net buyers by Rs.21608 crore so far this year. They held assets under custody of Rs. 19.55 lakh crore, according to year-end regulatory day.