FIIs put 422% more into construction in 6 months

FIIs put 422% more into construction in 6 months
The Financial Express, September 10, 2009, Page 4

Saikat Neogi, New Delhi

Foreign institutional investors are shoring up investment in the country’s construction sector. With the BSE Sensex touching a 15-month high, the market capitalisation of FII investment in construction has gone up a whopping 422% in the past six months. A detailed analysis by FE Research illustrates a return of confidence in the sector, which was missing during 2008 and also in early 2009.

While market cap does not depict an investment, the sum indicates the returns being generated for investors, which, in turn, is a tool for fresh investment. This move will also have a cascading effect on the sum poured into the real estate sector. Till September 8, FIIs have registered a net investment of Rs 40,362 crore in the domestic stock market. The total FII market cap in 13 leading sectors is Rs 4,45,313 crore.

Along with construction, the market cap of FII investment in infrastructure and heavy engineering has also shot up, largely due to higher government spending and leveraged investment by companies in these sectors. In heavy engineering, FII market cap has gone up 202% and in steel it was up 274% in the past six months. But the sectors that have not generated much FII interest are FMCG, PSUs, pharmaceuticals and telecommunications, considered as defensive stocks, as they give returns after a longer period of time.

Sarabjit Kour Nagra, vice-president, research, Angel Broking, said, "India, which is the second fastest growing economy after China, has been a major recipient of FII funds, which is likely to continue, given the strong fundamentals and growth opportunities. FIIs are likely to chase sectors or industries that are linked to domestic demand. Both consumption and investment-led industries, such as auto, banking, capital goods, infrastructure and retail, would continue to attract FII funds."

FIIs that have invested through qualified institutional placements (QIPs), public offers and even buy-backs at cheaper rates have benefited from the market rally and analysts say there would be more participation as others would not like to be left out of the rally. Last year, hit by the credit crunch and global slowdown, FIIs took out nearly $12 billion from the stock markets.

Going by the current market rally, analysts said the current FII holding of 16% in India’s top 500 companies may go beyond the 19% peak in 2007. The late revival of monsoon, upward revision of economic growth from 5.8% to 6.1%, better-than-expected performance of companies in the quarter ended June 30, the new direct taxes code, which promises to put more money in the pocket of the tax payer, and the trade policy with an ambitious target of $200 billion exports for 2010-11 have revived the confidence of FIIs investing in India.

Daljeet S Kohli, head of research at Emkay Global Financial Services, said FIIs have enough liquidity but no alternative market to investment other than India, where the domestic demand for goods and services is buoyant. "With the dollar weakening, FIIs are moving away from dollar denominated assets to emerging markets like India," he said.

India is one of the better performing markets, with the Sensex gaining 63% since January, as compared to China’s 58% in the same period. Within the first 100 days of UPA-II, FIIs have pumped in Rs 23,688 crore into the domestic stock market, the fastest-ever done by them.