Overseas investors are continuing to invest in Indian equities markets at a brisk pace with inflows already topping $5.5 billion in under two months of trading of 2012.
The huge inflows have sent valuations of scrips soaring and benchmark indices making double digit gains, but has also now raised fears, that the rally purely being driven by
foreign institutional investors (FIIs) could fizzle out as the fundamentals of the Indian economy have little changed in the past two months.
Ofcourse inflation, a big worry has come under control. According to latest data, India’s annual inflation was at 6.55 percent in January. Also the rupee which had declined sharply against the US dollar in December has now stabilised.
These factors were actually what helped overseas funds to start pouring into Indian markets in a big way.
According to data available with the Securities and Exchange Board of India (SEBI), FIIs have were net buyers in January to the tune of $2.03 billion. Last week saw them pump in over $698 million into equities taking the total for February to more than $3.51 billion.
The benchmark indices in the same period have rallied smarlty.
The 30-scrip sensitive index (Sensex) of the Bombay Stock Exchange (BSE) gained 2,468 points or 16 percent to close Friday at 17,923.57 points, compared to the Dec 30 closing figure of 15,454.92 points.
At the National Stock Exchange, the 50-scrip S&P CNX Nifty moved up 17 percent or 805 points in the two months of 2012 and closed Feb 24 at 5,429.3 points, as against the closing figure of the last trading day of 2011.
FIIs were far from optimistic about Indian stocks last year as the economy showed signs of slowdown and interest rates shot up after the RBI hiked key interest rates 13 successive times to tame inflation.
FIIs’ net sales were worth $357.8 million in equity in the last year, a far cry from the record $28.83 billion they pumped into the Indian markets in 2010.
But analysts are divided over how long the present rally can be sustained given the fact it is majorly driven by foreign money.
“The rally of the past two months now appear to be maturing. Key factors to watch out for would be the Iran imbroglio and its impact on crude oil price, the outcome of state elections and finally, the budget in mid-march,” said Sanjeev Zarbade, vice president, private client group research at Kotak Securities.
The Euro zone’s financial crisis and how member countries manage their debt restructuring will also be of crucial importance.