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Thu 10 Oct 2019 02:44 PM

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Is Indian equity market becoming too hot for Middle East NRI investors?

Expat Indians from Middle East countries account for a large chunk of NRI investors who invest in stocks, debt and fixed income products

Is Indian equity market becoming too hot for Middle East NRI investors?

Fresh fund flows by non-resident Indians (NRIs) into portfolio management schemes (PMS) of investment advisory and financial services firms in India have seen a drop of up to 80 percent this year, a trend seen in line with foreign investors’ shrinking appetite for Indian market amidst concerns on growth and abrupt policy changes.

This is despite a massive increase in S&P Sensex – the flagship index of Bombay Stock Exchange (BSE) – most part of the year, crossing the all time record of 40,000 level in May this year.

“From a level of about $100 million during 2015-17, fund flows by NRIs in our PMS this year has trickled down to just about 10 percent of the earlier levels,” a fund manager with Equity Intelligence, a leading Indian portfolio management company with a large NRI clientele, told Arabian Business.

“Most of our NRI clienteles are only still holding on to their investments made 2-3 years ago - though their asset value have eroded 50-60 percent from their peaks in the last one year or so – and not allotting fresh funds for investments,” the fund manager added.

Expat Indians from Middle East countries account for a large chunk of NRI investors who invest in stocks, debt and fixed income products through PMS.

India has also been seeing significant pullout of funds by foreign portfolio investors (FPIs) in the past several months, with FPIs net selling equity and debt securities amounting to about $5.5 billion in FY 2019.

Fund managers is some of the other leading broking and investment advisory companies also corroborated the massive plunge in fresh NRI fund flow into their PMSs.

Motilal Oswal Financial Services, Emkay Global Financial Services, Geojit and Arihant Capital are among the other leading firms which run portfolio management schemes for both resident and non-resident Indians.

Besides investing through PMS, current year’s Indian budget has allowed NRIs to invest in Indian market through FPIs as well.

Market analysts said NRIs have seen major erosion in their invested capital in the Indian market in the last one to one-and-half years despite a massive jump in Sensex and Nifty, and that is the reason why they are staying away from the market.

“Though NRIs are sitting over surplus funds, they are reluctant to invest in the market back home due to the prevailing overall negative economic sentiment and the steep rise in Sensex, which is largely perceived to be not in sync with the ground economic situation or financial health of companies,” an analyst with Mumbai-based Kedia Commtrade and Research, has said.

Though Sensex and Nifty posted massive gains in most part of the year, data show that price rise in only handful of large cap shares is the major reason for the hype in the indices.

Thousands of mid-cap and small-cap shares have seen erosion of 40 to 90 percent value in their share prices in the last 12-18 months, market analysts said.

“We are currently recommending some select companies in mid-cap to our NRI clientele, as our research finds their current market prices are much below their potential and fundamental values,” the fund manager with Equity Intelligence said, adding that though the NRIs are still in a wait-and-watch mode.