India: Foreign Investors Returning, Data Softens

Overseas investors have stepped up their purchases of Indian equities in recent days and have reversed the earlier outflows to be net purchasers here in 2011. Between last Thursday, March 31, Friday April 1 and yesterday April 4, foreign investors bought nearly $1 bln of Indian shares according to the Securities and Exchange Board. The net INR43.5 bln purchased in those three sessions offset in full and more INR25 bln sold in the year-to-date period.

Foreign investors were net sellers of INR94 bln of Indian shares in Jan and Feb, but turned to the buy side in March. Through March 30th, foreign investors bought $1.5 bln of Indian shares.

Foreign investors bought INR1.33 trillion of Indian shares last year and INR834.2 bln in 2009. Last year the Sensex was up 17% and was the top performer among large equity markets.

Separately, India reported its service PMI slipped to 58.8 in March from 60.2 in Feb. It is the first decline in three months. The modest weakening is not expected to stand in the way of additional rate hikes by the central bank. It last hiked rats on March 17, raising its repo rate by 25 bp to 6.75%, following its increased inflation forecasts.

The central bank views higher oil prices as inflationary. India imports 75% of its energy needs. Also, commercial loans have risen by nearly a quarter of over the past year, above the 20% central bank target.

Next week (April 11) India will report its Feb industrial production figures. A 5% year-over-year rise is expected after a 3.7% pace in Jan. The impact from the Japanese disaster are still working its way through the supply chains. Some Japanese producers, like Honda, will reportedly cut production in India next month because of parts shortages. Toyota on the other hand has denied plans to cut its production schedule.