Words ought to be a little wild, for they are the assault of thoughts on the unthinking
- J.M. Keynes

Friday, 3 February 2012

Follow the money - Buy Indian stocks?


NIFTY (50 large cap Indian company index) has broken the downward trendline and is trading above 200dma. Technical traders should be all over it.
The fundamental backdrop has been supportive as well. It has been helped by better than expected economic data and RBI's dovishness (and more importantly its CRR cut). The current vertical take-off seems to be largely due to FIIs piling back in. Until 1st Feb, they had invested $2.6bn into the equity market including a mammoth $422m on the 1st of February. The table below puts this number in perspective:

Date
Jan Inflow ($m)
Annual ($m)
2000
56
1,469
2001
854
2,741
2002
74
738
2003
223
6,702
2004
535
8,627
2005
286
10,901
2006
753
8,338
2007
-65
18,518
2008
-4,368
-12,918
2009
-869
17,639
2010
-230
29,321
2011
-1,387
-512
2012
2,183



FT's Lex has sounded a note of caution. And short-term indicators point to the market being overbought. However, Indian market performance is highly correlated (and there is some causality as well due to reflexivity) to inflows of foreign money. Any shift in investor portfolios from developed markets towards EM/BRICs will lead to a sustained bull run. Even if the shift is a percent or two, given the relatively puny size compared to developed markets, the effect will be outsized.

Best way to play this is through ETFs. Bloomberg lists 5 pages of them.

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