Indian equities will continue to lure foreigners even as concern global central banks may pare stimulus dragged the benchmark index to a two-month low and drove down the rupee to a record, according to Citigroup Inc.
Overseas funds have bought $117.3 million of local shares this month while they pulled $1.4 billion from Indonesia, $1.7 billion from Taiwan and $1.1 billion from Thailand, according to data compiled by Bloomberg. Foreigners have invested $15.2 billion into Indian stocks this year through June 11, second only to Japan among Asian markets tracked by Bloomberg.
“India is a place that captures people’s imagination; what this economy can grow to be and what this country can become,” Derek Bandeen, global head of equities at Citigroup, said in an interview with Bloomberg TV India today. “It’s a natural place to put capital to work. You will continue to see strong flows.”
India’s Finance Minister Palaniappan Chidambaram today signaled more foreign-direct investment caps will be eased soon and said measures are being taken to the rein in rupee swings, seeking to build on the boost to sentiment from an improved credit-rating outlook. Fitch Ratings yesterday upgraded India’s outlook to stable from negative following efforts to reduce the budget deficit and a nine-month policy push to spur expansion.
Fitch’s revision provided some succor for Prime Minister Manmohan Singh’s administration, which has been hurt by graft scandals that in recent weeks disrupted parliament and hampered efforts to extend the policy changes. The rupee plunged to a record earlier this week, weighed down by the current-account gap, and slid as much as 1.3 percent today.
The 30-stock S&P BSE Sensex fell 1.1 percent to 18,827.16 at 4 p.m. in Mumbai, the lowest close since April 17.
The Sensex has declined 7.1 percent from a two-year high reached May 17 on concern the rupee’s decline will make imports more expensive and limit the Reserve Bank of India’s scope to extend interest-rate cuts at its June 17 meeting. India’s gross domestic product grew 5 percent in the year ended March, the least in a decade. The global economy will expand 2.2 percent this year, the World Bank said yesterday, paring a January forecast of 2.4 percent.
India is “probably not growing as fast as it could, but I don’t know whether anybody is,” Citigroup’s Bandeen said. The nation’s “great asset is the population; a large, educated and aspirational middle class that’s really capable of delivering on the global stage.”
Global stocks have lost some $2.5 trillion of their value since U.S. Federal Reserve Chairman Ben S. Bernanke said May 22 the authority could taper stimulus if the economy improves. The Bank of Japan this week held off adding to stimulus, and banks in New Zealand and South Korea kept their key rates unchanged.
The withdrawal will be “a very gradual process,” Bandeen said. “The Fed will test the waters from time to time and see how reactions are. In the long run, we all want to get back to an economy that’s strong on its own and doesn’t require the exceptional stimulus that’s been provided.”
Bandeen said he prefers emerging market equities over the long term even as developed-nations stocks have outperformed. The MSCI Emerging Markets Index has slid 11 percent this year, compared with an 8.1 percent advance in the MSCI World Index of developed-country stocks.
Flows to emerging nations, including India, will increase as global companies shift focus to growth from “being safe and sound,” he said.
“Top-line growth is difficult in many of our industries so people will start to look at mergers and acquisitions for that opportunity,” Bandeen said. “That suggests there’s more money coming into the equities space. Where will it find its way? Quite naturally to emerging markets.”