Stocks in India, Asia’s second-largest destination for foreign money this year, are at risk of dropping further on concern overseas investors will withdraw funds if the U.S. Federal Reserve curbs monetary-policy easing.
“India has been one of the beneficiaries of the global liquidity tap which opened for emerging markets,” said S. Krishnakumar, head of equities at Sundaram Mutual Fund, which manages $2.6 billion of assets. Foreigners could “pull out some investments” if the Fed starts tapering its economic stimulus, he said by phone from Chennai in southern India.
The CHART OF THE DAY shows that the average foreign stake in companies in the S&P BSE 200 Index was 17.9 percent on March 31, the highest quarterly proportion since Bloomberg began compiling the data in 2009. Overseas investors bought a net $15.3 billion worth of Indian shares this year through June 5, second only to Japan among Asian markets tracked by Bloomberg.
The S&P BSE 200 Index has declined 2.4 percent since May 22, when Fed Chairman Ben S. Bernanke said the central bank could curb asset purchases if the U.S. economy recovers. The Indian market is “susceptible” to an abrupt end in the major source of liquidity, said Krishnakumar. Foreigners have been net sellers of Indian stocks in only two of the past 13 years, Bloomberg data show.
The S&P BSE 200 Index represents 83 percent of the total market value of about 4,000 companies traded on the BSE Ltd., data compiled by Bloomberg show. Apollo Tyres Ltd., the nation’s second-biggest tiremaker by value, Shriram Transport Finance Co., a truck financier, and Dr. Reddy’s Laboratories Ltd., the second-biggest drugmaker by value, are among companies that saw the biggest increase in foreign ownership in the March quarter.