India turns pariah for global fundmen

MUMBAI: The verdict’s out: global emerging market fund managers are very, very pessimistic towards Indian equity.

A Merrill Lynch report, Fund Manager Survey and Global Emerging Markets, released on Wednesday said nearly three-fourths of fund managers said Indian equity was the least preferred among the BRIC (Brazil, Russia, India, China) countries.

Authored by New York-based global emerging market equity strategists Michael Hartnett, Bill Kan, Lucila Broide and Michael Penn, the report said Brazil was the most preferred market for 57% of the fundmen, while 5% each favoured China and Russia.

What rubs it in is the outlook on India - Among the 15 emerging markets surveyed, India turns out to be the most unfavourable, with almost two-thirds of global emerging markets investors saying they were underweight on Indian equity.

Chile, Poland, South Africa and Israel followed in that order on the proportion of fund managers saying that they are underweight on equities in those countries.

Domestic fund managers too haven’t been very positive on Indian equity. They have sold a net Rs 3,363.76 crore worth of equity this calendar year.

“They are upbeat on Indian equity over the next three years, but with valuations expensive, interest rates high and politics preceding economics, investors are uncomfortable with Indian equity in the short term,” said Paras Adenwala, chief investment officer at ING Vysya Mutual Fund.

“Therefore, for this calendar, I see a rangebound market. I am not surprised by the survey results.”

But if India is a market led by domestic consumption, why has the country’s equity fallen so much in the eyes of global fund managers?

The survey doesn’t explain but said 91% of the fund managers said they preferred to in invest in a market run by domestic demand than by overseas demand. To another
question on which emerging market style rotation does the current global economic cycle phase favour, three-fourths said it favours domestic demand the most, compared with interest-rate sensitives (none favoured), early cyclicals  (none favoured) and late cyclicals (24% favoured).

The survey also showed 76% of the respondents being overweight on Brazil. Korea, Russia, Turkey and Thailand, in that order, in terms of fund managers’ confidence in the equity scenario. 

Brazil getting the thumbs up underscores Latin America as the most popular among emerging market region today.

On the equity markets most/least preferred over the next 12 months, 19% of the fundmen said they like Latin America, while 10% favoured Asia. Europe, Middle East and Africa, or the EMEA grouping, was the least preferred - one-third of them said so.