Overseas investors are still bullish on India. But further investments will depend on how the Indian market pans out in the coming months. My view is that over the next one year, market will range between 14000 and 18000,” Kotak Mahindra Bank head of international business Paul Parambi told ET in an exclusive interview. “With regards to corporate earnings, there will be several sectors like IT and financial services where earnings will taper off,” Mr Parambi added.
What is the sense you get from your overseas clients? Is the mood buoyant or are people wary?
International investors do not have many choices. If they want to invest in a large market with strong long-term fundame-ntals , India is the best bet. Many large investors — especially institutional investors — have identified India as a market of strategic importance. But then new investors will only come in when the Indian market attains reasonable comfort levels. The belief in India is intact, but there are short-term concerns.
Rising inflation, concerns over sustained growth, widening fiscal deficit as a result of surging oil prices and political uncertainties are key concerns of foreign investors. All said, at 15x1-year PE multiple, India is very attractively valued. There are several stocks with good embedded value at PE as low as 13x. Other than India, it is Brazil with its great commodity play that is drawing lots of foreign investors.
What is your take on money flowing out of India?
From what we see, there have been no major outflows (with regards to investments) from India. I am a bit unsure about FII redemptions worth Rs 20,000 crore. Even if there has been a sell-off , it could be on proprietary accounts of foreign investment banks, winding up of participatory notes (PNs) or hedge funds cutting leveraged positions on PNs.
I am not sure if the Rs 20,000 crore worth of investments that have flown out is on account of genuine foreign investors redeeming their portfolios. It is possible that in current markets foreign investment banks could be cutting proprietary book positions, but I have serious doubts on the theory that states non-institutional foreign investors are redeeming their India investments. At this point of time, there is no other sane market in the world for foreign investors to side-step .
How do hedge funds perceive India as an investment destination? Are they making money in this volatile scenario?
India is clearly a market that is of interest to hedge funds given the size and trading opportunities. These funds take different forms from equity long/short funds to distressed asset funds to convertible arbitrage funds and so on. They can also short the market using the derivative markets. However, making money in this market depends on the skill set of individual managers and the time perspective of their respective funds. Many of the India dedicated hedge funds are really managed by managers with a long-only mind set and I suspect many of them would be finding it difficult to deliver the returns expected by their investors.
P-Notes and their impact on the equities market?
I think, repealing PNs was the right move as direct investment through FIIs and through the sub-account route is a much superior route from the regulatory perspective for investing into India. But, while repealing PNs there needs to be a simultaneous opening up of the sub-account route for investing into India. The notification on sub-accounts has come out only recently and the inflow from new sub-accounts should now commence.
There are two concerns plaguing foreign investors. The first one is where FIIs have to give an undertaking to Sebi that their sub-accounts have not issued any offshore derivative instrument including participatory notes, or purchased them from non-resident Indians or resident Indians.
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