Workers hang a sign featuring an image of India’s Prime Minister Narendra Modi in GIFT City, Gujarat, India (Photographer: Dhiraj Singh/Bloomberg)  

Indian Equities Not Attractive Enough To Lure Foreign Investors Back, BofAML Says

The valuations of Indian equities aren’t compelling enough to attract foreign investors.

That’s the word from Sanjay Mookim, India equity strategist at Bank of America Merrill Lynch. “Indian equities have overshot and are trading at all-time highs compared with other emerging market economies,” Mookim said in an interaction with BloombergQuint. He is cautious on the equity markets due to domestic risks with the elections nearing. There could be further downside in Indian equities despite the recent correction, he said.

“The domestic risk off is very likely in India with the elections coming due to which we are cautious on equity markets for a while,” he said.

Foreign investors have pulled out more than Rs 54,000 crore from India's equity and debt markets so far, the most in at least a decade and a half, according to NSDL data. The outflows stem from macroeconomic concerns driven by rising fuel prices. Escalating trade tensions between the U.S. and China only added to the selloff.

The benchmark NSE Nifty 50 Index, which has declined 7 percent from its Aug. 28 peak, has remained volatile this year even as it scaled new highs. The gauge has returned less than 5 percent gains for the year but trades at 23 times its earnings, making it the second-most costliest among Asian peers.

Mookim doesn’t see the valuations in his favour and would be cautious in chasing risks.

The valuations are an indicator of risks. If the valuations are rising, one needs to derisk their portfolio, which means, the investor would avoid liquidity risks and not buy small- and mid-cap stocks unlike before.
Sanjay Mookim, India Equity Strategist At BofAML.

The rupee may have depreciated against the U.S. dollar due to rising crude oil prices and a widening current account deficit, but Mookim said that “we’re not in a situation to start defending the rupee aggressively”.

“The rupee needs to keep up with its emerging market peers,” he said. “The currency depends on the government managing volatility of the currency.”