More and more foreign funds setting up shop

The number of registered FIIs Went up from 685 as on March 31 to 721 as on June 10.

Foreign funds seem to be bullish on Indian equities. According to data available on the Securities and Exchange Board of India (Sebi) website, the number of registered foreign institutional investors (FIIs) has gone up from 685 as on March 31 to 721 as on June 10. Since the beginning of the current year, FIIs have pumped in $3.77 billion into the Indian equity markets till date.

A dealer with a foreign broking firm said, "the increased number of FII registrations and liquidity provided by domestic funds has prompted new funds to invest into Indian markets. The FII flow is expected to continue into emerging markets with India grabbing a substantial flow of new money."

Emerging markets attracted a record $647.6 million inflows in the week ended June 8, making it the best week in terms of net inflows since March 9. In the current calendar year to June 8, funds focussed on investing in the emerging markets have attracted $2.6 billion of net inflows from investors.

Devesh Kumar, head of equity at ICICI Securities said, "The emerging markets have witnessed some sort of resurgence with money flowing back into these markets, including into India. The risk of higher oil prices and rising dollar has lowered to an extent, boosting the confidence in emerging markets."

"Emerging markets have benefited from their own strong economic fundamentals and still attractive valuations, but also from the growing belief that the US monetary authorities may be nearing the end of interest rate hikes," said Emerging Portfolio Fund Research (EPFR) managing director Brad Durham. EPFR is a Boston (US)-based market intelligence company which tracks the flow of funds in the global markets.

"There are signs of a so-called Goldilocks global economy, that is neither too hot to fan serious inflation""and the resulting spike in bond yields and risk aversion""or too cold to stifle demand for imports. This is supportive of emerging markets," Durham said.

All equity funds tracked weekly by EPFR took in net inflows of $1.39 billion, or 0.10 per cent of total existing assets, and posted a return of 0.12 per cent.

The head of equity with a domestic broking firm told , "A lot of money from Japan is expected to flow into emerging market funds as they are averse of putting their money in US or European markets. India is expected to attract a lot of interest from large Japanese institutions, but the money may not come directly into Indian markets at this point of time."

While investors stepped up the pace of their contributions to US equity funds, they reduced their exposure to global/ international equity funds, pulling money for the seventh time in the last eight weeks from funds investing in European equities.

As a percentage of the total assets basis, Latin America Equity Funds were the big winners in the latest week. These funds took in their second largest weekly inflow this year, receiving $142.07 million, or 2.37 per cent of their total assets. Global Emerging Market (GEM) Equity Funds took in $284.1 million, their best weekly total since March.

Despite investors pulling out $2.6 billion from these funds this year, GEM funds have posted returns of more than 3 per cent over the past week and their year-to-date return at 6.5 per cent is well ahead of the 2.5 per cent return on the benchmark Morgan Stanlay Capital-Emerging Markets (MSCI EM) index.

Asia ex-Japan Equity Funds recorded $184.5 million of inflows, with India Funds ($49.8 million) and Taiwan Funds ($16.5 million), making up the bulk of the healthy total.