This article originally appeared in Economic Times Markets: “FIIs back to investing in India, but are very cautious right now. FIIs have lapped up Indian shares to the tune of $627 million so far in November.” written by Amit Shah on Nov 13, 2019, 02.35 PM IST

FIIs have lapped up Indian shares to the tune of $627 million so far in November.

Mumbai: Foreign institutional investors (FIIs) are back to buying Indian stocks and a chunk of this money seems to be coming in from broader BRIC (Brazil, Russia, India, and China) funds.

FIIs have lapped up Indian shares to the tune of $627 million so far in November and have been buyers in all sessions this month. They invested a net of $2 billion in October, recording best monthly inflow since March.

Equity benchmark Sensex scaled a record high of 40,749 points this month, while broader Nifty inched closer to forming a new high. For the month so far, Sensex and Nifty are up 0.53 per cent and 0.3 per cent, respectively, while year to date, they have gained 11.86 per cent and 9.67 per cent.

“We see green shoots due to takeover of unorganised sector by organised sector and increase in urbanisation (partly due to the adverse impact of demonetisation and long lead time of GST input credit),” said Sanjay Guglani, CIO of Singapore-based Silverdale Capital.

“We are not carried away by prevailing high valuations, as significant gain in market share (primarily at the cost of unorganized sector) could translate into significant increase in profits, which could moderate high valuations sooner than expected,” Guglani said.

Sensex currently trades at 21.97 times one-year trailing earnings, data from Reuters Eikon showed.

“However, we are cautious about increasing our India exposure. There will be tactical moves, as we do not see any sharp turnaround,” he said.

However, a lot of those gains could be coming in as a part of broader BRIC inflows, as investors showed preference for diversified exposure.

India is not alone on this count, according to data from global fund-flow tracker EPFR. Russia, India, China and Brazil Equity Funds all recorded outflows in the week to November 6, but dedicated BRIC (Brazil, Russia, India and China) Funds chalked up their biggest inflow in over seven months, EPFR said in a release on Friday.

Guglani of Silverdale said he had not seen any major fund focusing on India, and this was normal rotation given high valuations, especially in the US.

Marteen-Jan Bakkum, Maarten Jan Bakkum, Senior Strategist Emerging Markets at NNIP Investment Partners, suspects mainly passive money is flowing to India, after global investors became positive about emerging markets (EM) versus developed markets (DM) on hopes of a US-China trade deal.

In an email from The Hague, The Netherlands, Bakkum said he had not put in incremental money in Indian equities, but has stayed put in Indian market.

“We are keeping an overweight,” he said. Bakkum pointed out that relative to the EM universe, India is not trading at record highs.

“For us the relative levels are more relevant than absolute levels. India remains a high-growth market, despite the growth headwinds coming from bad debts in several sectors and in the public banks,” Bakkum said.

“For now, we are sticking to our ‘overweight’ stance, as we see higher growth risks elsewhere, due to global trade uncertainty and higher political risk. Also, in India, we are seeing more positive reform momentum than elsewhere in EM,” he added.

High valuations of Indian stocks bother some investors, though.

Hertta Alava, senior strategist at Nordea in Finland, has a neutral view on India. “If the US and China are able to sign the first phase trade deal soon, I would expect that to benefit Chinese stocks, and maybe, some money could switch from India and some other emerging markets to China,” Alava said in an email from Helsinki.

“I believe Indian stocks have priced in the short-term upside from tax reforms and the next leg should happen only when there is some evidence of faster growth. Valuation multiples are quite high as usual,” she said.