FIIs shy away from pricey India, turn to EM peers
ET Bureau|
Updated: Oct 07, 2017, 10.53 AM IST
Indian equities are continuing to lose their shine for overseas investors owing to stiff valuations and an uncertain earnings outlook. Instead, the foreigners are raising allocations to other emerging markets such as Brazil and Mexico that are trading at more reasonable valuations with a lower probability of earnings slippage.
Indian markets have underperformed the MSCI EM index by 7 per cent since January 2017. The index is used as a benchmark by global fund managers to evaluate their performance in emerging markets (EMs).
In addition, Indian equities were overweight 33 per cent in the emerging markets index in January.This has now fallen to 23 per cent.
Foreign portfolio investors (FPIs) had invested close to $ 8.8 billion in Indian equities in the seven months to July. In the past two months, they have sold equities worth $3.7 billion. To be sure, some of this slack has been picked up by domestic institutional investors.
Indian equities trade at 18 times one-year forward earnings, closer to the top end of the historical trading range. The Nifty is two standard deviations away compared with its 10-year average valuation, suggesting prices may be excessive. This is the first time since 2008 that valuations have reached such a high level.
India's valuation has increasingly become a sore point, which makes large foreign portfolio investor (FPI) inflows difficult in the near term, CLSA said in a note based on the investor feedback. Citi said in a report that it sees limited upside to the market in the near term and prefers to be selective.
The earnings growth picture for Indian equities doesn't look impressive. The forecast of 12 per cent blended earnings growth for the four quarters starting July 1 is the lowest in emerging markets.
Credit Suisse's India strategist Neelkanth Mishra said in a note that earnings per share (EPS) growth of Nifty companies will settle at mid-single digits for FY18 as against the consensus estimate of 11 per cent. This also raises doubts on the projection of 23 per cent growth for FY19.
Indian markets have underperformed the MSCI EM index by 7 per cent since January 2017. The index is used as a benchmark by global fund managers to evaluate their performance in emerging markets (EMs).
In addition, Indian equities were overweight 33 per cent in the emerging markets index in January.This has now fallen to 23 per cent.
Foreign portfolio investors (FPIs) had invested close to $ 8.8 billion in Indian equities in the seven months to July. In the past two months, they have sold equities worth $3.7 billion. To be sure, some of this slack has been picked up by domestic institutional investors.
Indian equities trade at 18 times one-year forward earnings, closer to the top end of the historical trading range. The Nifty is two standard deviations away compared with its 10-year average valuation, suggesting prices may be excessive. This is the first time since 2008 that valuations have reached such a high level.
India's valuation has increasingly become a sore point, which makes large foreign portfolio investor (FPI) inflows difficult in the near term, CLSA said in a note based on the investor feedback. Citi said in a report that it sees limited upside to the market in the near term and prefers to be selective.
The earnings growth picture for Indian equities doesn't look impressive. The forecast of 12 per cent blended earnings growth for the four quarters starting July 1 is the lowest in emerging markets.
Credit Suisse's India strategist Neelkanth Mishra said in a note that earnings per share (EPS) growth of Nifty companies will settle at mid-single digits for FY18 as against the consensus estimate of 11 per cent. This also raises doubts on the projection of 23 per cent growth for FY19.
