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Foreign Institutional Investors continued to focus on Indian equities as the markets have seen net inflow of $2.3 billion in May, taking the total to $7.8 billion so far this year, says an HSBC report.
"India still the most loved market in the region; Malaysia the least loved market," HSBC said in a research note.
According to the global financial services major, FII flows in May were mixed, with investors being more selective. In the Asia region, investors bought India, preferred Korea over Taiwan and sold Thai equities.
Overall, foreign investors have bought $18.8 billion worth of equities till January to May 26 in Asia excluding Japan. Out of this India received $7.8 billion, followed by Taiwan $6.3 billion and Indonesia $3.6 billion respectively.
Korea and Philippines received $0.9 billion and $1 billion respectively, while they sold Thai equities, as political risk further intensified.
According to HSBC, FII flows in 2014 are likely to be much better than last year for emerging markets. These economies have so far this year already received 78% of the total inflows in 2013.
Although FIIs poured money in Asian equities, mutual funds remained cautious as they took out $1.2 billion from Asia, excluding Japan, in the last four weeks ending May 21 2014, it said quoting EPFR Global.
However, mutual funds continued to purchase Indian equities and turned slightly positive on China as well, with the later announcing better manufacturing numbers in May.
"Mutual funds are most overweight on Indian equities, but the exposure has come off compared to three months ago," HSBC said.
Funds increased their exposure to Thailand and Philippines equities as well, though the relative high exposure to Thai equities was probably because the market fell faster than mutual fund redemptions, HSBC said.
