Affected by recent subprime home- loan defaults that have surfaced in the U.S. financial markets, emerging countries like India are witnessing net outflows of foreign capital.
From a record foreign capital inflow of 5.9 billion U.S. dollars in equities last month, India's net outflow this month has reached 2.2 billion U.S. dollars.
"The investment trend only demonstrates the waning risk appetite of foreign investors to emerging markets like India," says U.R Bhat, managing director at Dalton Capital Advisors P Ltd, and advisor to foreign investors investing in India.
"Across the world the markets have been volatile and India is no exception," he said.
Dalton Capital Advisors is part of the UK-based Dalton Group that manages 3.5 billion U.S. dollars funds for global investors.
Speaking exclusively to Xinhua, Bhat said that Indian equity markets will continue to remain volatile in the short term though banks here having no exposure to such risky instruments like subprime loan notes.
The Indian stock markets have been witnessing a bullish trend over the last two years but the trend has now reversed with the subprime woes. From a Sensex level of 7,780 on Aug. 20, 2005 to an all-time high of 15,776 on July 26, 2007, the benchmark index Sensex closed Friday at 14,425.
Indian domestic stock markets have been bullish so far largely on macroeconomic factors like GDP growth rate of over nine percent, a reasonable control over inflation levels coupled with new investment opportunities in infrastructure and consumer sectors.
The consumer sector witnessed a rapid growth because of increase in the consuming class, who can afford the good things in life, Bhat said. Besides, the corporate sector ramped up capacities on account of burgeoning demand growth.
"Over the last four years, the average corporate earnings growth stood at 30 percent, supported by growth in aggregate demand and a benign interest rate regime," Bhat said.
In the recent past, over one third of capital inflows to India were from hedge funds through participatory notes, rather than from India dedicated funds and other allocations that were largely long-term in nature, Bhat said.
Since risk aversion has now taken a centre stage, there is bound to be some amount of negative sentiments across benchmark indices in the short term, said Bhat.
"For the moment the market is behaving based on guess work and a restricted flow of information," he said.
For long term investors, India continues to be an attractive destination and the platform on which India attracted foreign investments in the past remains intact, he said. The reasons for his view is that fundamentally, the economy is robust and inflation, under control. Interest rates are now stable and there are possibilities of a softer interest rate regime.
"Corporate earnings growth momentum continue though there could be a marginal deceleration, say, to 20-25 percent," he said.
Foreign investment in India were largely from the United States and Britain and the reasons for that, according to Bhat, are largely associated with the tax benefits.
Source: Xinhua
|
Comment
Tell A Friend
Print Format
Save Article