What foreign investors are looking for in India
R. Venkataraman, Managing Director, IIFL, talks about how current market
levels and the economy impact FII investments and what foreign
investors are looking for.
R. Venkataraman, Managing Director, IIFL
R. Venkataraman, Managing Director, IIFL, talks about how current market levels and the economy impact FII investments and what foreign investors are looking for.
Q. India's rating was downgraded by S&P as well as Fitch. What does this mean for India and foreign fund flows into the country?
A. S&P and Fitch have downgraded the rating outlook for India on the premise of a weakening macro environment and political scenario. However, we don't see actual rating downgrades coming in as the recent fall in crude prices has improved current account deficit and inflation outlook. RBI is also expected to cut interest rate in 2012-13, which will improve GDP growth.
Q. What would foreign investors like to see from Indian markets?
A. Corporate earnings growth has been weak over the past few quarters on the back of slowing revenue growth, declining margins and high interest costs. Reported profit growth for BSE 500 companies have been negative for most of 2011-12. Estimates indicate a 14-15% growth in Nifty EPS for 2012-13. A double-digit growth would be well accepted by the markets. In terms of policy decisions, FIIs are awaiting government action on FDI in retail, insurance, pension sector reforms and land acquisition bill.
Q. Why should FIIs invest in India?
A. At current market levels, India offers the most attractive risk-return trade off . Even with 6-7% GDP growth, India remains the second fastest growing economy in the world. Interest rates are set to come down and the government has shown some urgency in reforms. Sharp decline in crude oil prices would drive lower inflation and CAD. The draft guidelines of GAAR, which keeps P-Notes (participatory notes) out of the purview and suggests applicability of provisions will encourage capital flows.
Q. Which sectors are favoured by FIIs?
A. FIIs have been bullish on financial services, IT, pharma and FMCG. Private banks are preferred to public banks due to superior margin, asset quality resilience and higher capitalisation. In IT, except for Infosys, large players are seeing healthy growth. The sector is a major beneficiary of rupee depreciation. We like HCL Tech and Wipro. Consumption momentum has continued and supports revenue growth of FMCG companies. ITC and GSK Consumer are our preferred picks.
Q. India's rating was downgraded by S&P as well as Fitch. What does this mean for India and foreign fund flows into the country?
A. S&P and Fitch have downgraded the rating outlook for India on the premise of a weakening macro environment and political scenario. However, we don't see actual rating downgrades coming in as the recent fall in crude prices has improved current account deficit and inflation outlook. RBI is also expected to cut interest rate in 2012-13, which will improve GDP growth.
Q. What would foreign investors like to see from Indian markets?
A. Corporate earnings growth has been weak over the past few quarters on the back of slowing revenue growth, declining margins and high interest costs. Reported profit growth for BSE 500 companies have been negative for most of 2011-12. Estimates indicate a 14-15% growth in Nifty EPS for 2012-13. A double-digit growth would be well accepted by the markets. In terms of policy decisions, FIIs are awaiting government action on FDI in retail, insurance, pension sector reforms and land acquisition bill.
Q. Why should FIIs invest in India?
A. At current market levels, India offers the most attractive risk-return trade off . Even with 6-7% GDP growth, India remains the second fastest growing economy in the world. Interest rates are set to come down and the government has shown some urgency in reforms. Sharp decline in crude oil prices would drive lower inflation and CAD. The draft guidelines of GAAR, which keeps P-Notes (participatory notes) out of the purview and suggests applicability of provisions will encourage capital flows.
Q. Which sectors are favoured by FIIs?
A. FIIs have been bullish on financial services, IT, pharma and FMCG. Private banks are preferred to public banks due to superior margin, asset quality resilience and higher capitalisation. In IT, except for Infosys, large players are seeing healthy growth. The sector is a major beneficiary of rupee depreciation. We like HCL Tech and Wipro. Consumption momentum has continued and supports revenue growth of FMCG companies. ITC and GSK Consumer are our preferred picks.
