FII’s remain positive on Indian markets on recovery hopes: UBS

The lower rates justified higher valuations and relative growth drove the comfort of investors from the US.

The Dollar Business Bureau

 Foreign Institutional Investors (FIIs) continue to be overweight on country’s markets on the hope of recovery in the second half of the current financial year and also on the long-term outlook of growth, according to a report of UBS. 

The meeting of UBS with more than 80 investors in the US, the EU and Asia during the last month revealed that almost all the FIIs remain overweight and positive on the Indian markets and seemed to be not concerned about rich valuations or about the 'overweight' position, it said.

There are several factors which are responsible for this optimistic outlook of investors on Indian markets such as hopes of a recovery in growth in the second half of current fiscal; confidence about reforms, like GST, helping in the long-term growth outlook for the country; low rates to justify higher valuations and attractive relative growth.

The lower rates justifying higher valuations and relative growth drove the comfort of investors from the US and the EU, whereas the investors in Asia and India were confident on the hopes of growth recovery. 

The hopes for recovery in the second-half remain high among the investors, led by wage boost by Central Pay Commission in urban India and this year’s good monsoons in rural areas, the report said. 

The risk-reward ratio of Nifty is unattractive and reduced the earnings estimates further, it said.

UBS is expecting the Nifty base case at 8,000 level, with upward of 8,800 and downward of 7,000 scenarios for 2016-end. 

The report further noted that upcoming elections in Uttar Pradesh next year are also one of the areas of interest but mainly for investors in Asia/India. 

On the Reserve Bank of India’s policy stance, the UBS said the strong process for disinflation under way will help in driving interest rates sharply lower with few investors expecting further cuts of 100 basis points.

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The Dollar Business Bureau - Oct 26, 2016 12:00 IST