The 2.58% weekly surge in the Sensex and a similar rise in Nifty levels failed to lure foreign funds to the country during the week ended May 16.
MUMBAI: The 2.58% weekly surge in the Sensex and a similar rise in Nifty levels failed to lure foreign funds to the country during the week ended May 16.
India-dedicated funds saw an outflow of $149.3 million during the week, which is more than 54.5% of the total outflow of $273.7 million in the four weeks ended May 16, according to a Citigroup Global Markets report. The outflow from the India fund was pegged at an 8-week high during the period.
The report titled “Fun with Flows” said May has historically been the worst season for Asian fund flows and it seems no exception this time either. “Flows have historically been negative in the first five months of the year,” the report released on Monday said.
This is in stark contrast with the situation during the corresponding period a year ago when most emerging markets except China witnessed negativity in the fund flow. But the reason behind the exceptional 2006 numbers was “the extreme activity in commodities”, the Citigroup report said.
As regards withdrawal of funds from emerging markets, India featured on the top second only to China, which saw redemptions worth $ 438.4 million. Surprisingly, the outflows from funds dedicated to these two countries, clubbed together, form 96% of the net outflow from the region during the week May 10-16, 2007. Citigroup report blamed the situation on the stretched valuations in these two markets. China is currently trading at 3.1x of its book value as against its peak valuation of 3.4x, while India is at 5x of its book value as compared with the peak of 8.8x.
“These numbers are not representative of the FII activity in the country. But may get reflected in the FII investment figures sooner or later,” said Sunil Jain, an analyst with Edelweiss. “May 2007 has not seen much activity compared with the year-earlier period,” Jain said.
The Taiwan market, too, experienced tremendous redemption pressure as foreigners turned net sellers after eight weeks of purchases. On the other hand, Korea saw the highest advancement in inflows amongst all emerging markets. The 4-week outperformance helped Korea replace Singapore/Malay as the foreign investors’ favourite.
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