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India Market Strategy ------------------------------------------------------ Maintain UNDERWEIGHT
FII inflows reflect weaker news flow ex-India; macro still weak
● FII flows in Mar-11 have reversed the trend of outflows seen since
Dec-10 (Fig 1): surprising in an environment of macro-economic
uncertainty. The last time there were such concerns, i.e., in May-
10, we had seen significant FII outflows.
● As a result of the inflows, India has outperformed EM by 4.5% and
NJA by 3.6% so far this month (Fig 3): India’s performance has
shown good correlation with FII flows (Fig 2; 0.72 since ‘05). About
half of YTD U/P against NJA has thus been covered.
● We believe the reversal is just re-allocation – no further bad news
in India (apparently benign budget, stubborn but stable inflation,
troughed IIP, minor EPS cuts), whereas several other markets
have seen negative surprises: HK by concerns on China, and
Taiwan by technology related worries (linked to Japan) (Fig 4).
● Since early Feb, India’s underperformance against developed
markets has also reversed (Fig 5), especially against the EU,
where concerns on debt in peripheral Europe have continued.
● While some in the market have already started to expect a
reversal of the “buy global; sell local” trade in India, we believe it is
too early to call it a trend. While near-term fund flows may keep
driving India’s outperformance, economic momentum should stay
weak, which is likely to continue to pressure market multiples
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Market Strategy ------------------------------------------------------ Maintain UNDERWEIGHT
FII inflows reflect weaker news flow ex-India; macro still weak
● FII flows in Mar-11 have reversed the trend of outflows seen since
Dec-10 (Fig 1): surprising in an environment of macro-economic
uncertainty. The last time there were such concerns, i.e., in May-
10, we had seen significant FII outflows.
● As a result of the inflows, India has outperformed EM by 4.5% and
NJA by 3.6% so far this month (Fig 3): India’s performance has
shown good correlation with FII flows (Fig 2; 0.72 since ‘05). About
half of YTD U/P against NJA has thus been covered.
● We believe the reversal is just re-allocation – no further bad news
in India (apparently benign budget, stubborn but stable inflation,
troughed IIP, minor EPS cuts), whereas several other markets
have seen negative surprises: HK by concerns on China, and
Taiwan by technology related worries (linked to Japan) (Fig 4).
● Since early Feb, India’s underperformance against developed
markets has also reversed (Fig 5), especially against the EU,
where concerns on debt in peripheral Europe have continued.
● While some in the market have already started to expect a
reversal of the “buy global; sell local” trade in India, we believe it is
too early to call it a trend. While near-term fund flows may keep
driving India’s outperformance, economic momentum should stay
weak, which is likely to continue to pressure market multiples
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