Despite concerns on tax and sluggish corporate earnings growth, most global investors continue to maintain an overweight position on the Indian market, says foreign brokerage UBS. It had conducted roadshows with a little over 100 investors over the past month.
“They have trimmed a little bit (of their India holdings). But even if you look at the selling of $2 billion over the past two months, it appears insignificant compared to their net buying of over $4 billion this year and the big numbers seen over the past couple of years,” said Gautam Chhaochharia, head of equities research-India at UBS. “Most foreign institutional investors remain positive on the Indian market, both in absolute and relative terms.”
In the recent past, many experts had expressed concern that India’s significantly overweight position among foreign investors would make the market vulnerable at a time when underweight markets like China and South Korea were performing well.
“The positioning is definitely not light; it is still quite heavily positioned on India. The expectation remains quite hopeful and positive…our growth recovery will be gradual and mild and might, therefore, disappoint some investors,” said Chhaochharia.
UBS expects the Nifty benchmark index on the National Stock Exchange to climb to 9,200 by December-end and believes the rate cutting cycle will be a key catalyst. It expects earnings growth of around 10 per cent for 2015-16. The brokerage has recommended underweight on rural-focused sectors such as consumer staples and two-wheelers.
After kissing nearly 9,000 in end-February, the Nifty now trades around 8,400. Chhaochharia said the “risk-reward ratio is now reasonable, compared to what it was a couple of months before”.
He also said the FII retrospective tax controversy was a concern but not the main concern of foreign investors, who “look at the holistic picture”.
