Emerging market fund managers bearish on India

Nation’s rating has fallen to neutral from most overweight

For the first time since October 2014, India has fallen out of favour among emerging market and Asian fund managers with its rating falling to neutral from being the most overweight. China has replaced India as the economy on which fund managers are most bullish on, as per the fund manager survey released by the Bank of America Merrill Lynch (BofA ML).

“Based on our Asia-Pacific ex-Japan investor panellists, India has fallen out of favour from being most overweight to neutral, something not seen since October 2014. China moved up to the most overweight as investors probably anticipate more easing from the authorities to combat the sharp slowdown and deflationary pressure,” said the survey released on Tuesday. The change in view towards India is already being witnessed in the form of an overall slowdown in foreign fund flows into the domestic equity market.

Lower inflows

The current calendar year saw a net inflow of Rs. 23,409 crore ($3.55 billion) in the equity market, which is significantly lower than the annual flows witnessed in the past few years. For instance, in 2014, Indian equity markets saw net foreign flows pegged at Rs. 97,054 crore ($14.73 billion), as per data provided by the National Securities Depository Ltd. (NSDL). The benchmark 30-share Sensex has lost nearly 6 per cent in the current calendar year.

Market fund managers bearish on India

As per the BofA ML survey, which saw participation of over 90 fund managers managing $213 billion, a recession in China and a debt crisis in emerging markets remain the biggest concerns even as the overall confidence in emerging markets remain near record lows.

“According to our survey, global fund managers’ positioning in emerging markets remain near record lows, even with improving China growth prospects at the margin and massive undervaluation, as investors worry about weak earnings outlook, collapsing commodity prices, stronger U.S. dollar and higher global yields,” said the survey report.

Even as a recession in China remains the biggest concern, fund managers have expressed confidence in the monetary and fiscal easing steps taken by China in the last one year that has led them to believe that the Chinese economy will see some improvement in the next 12 months.

Interestingly, a growing number of fund managers are expecting a rate hike in December by the U.S. Federal Reserve, which would again impact the foreign flows in emerging markets, including India.