Mumbai: There is still much gas in the tank to drive the top-30 Sensex after the Indian stock benchmark posted its best January performance in 18 years.
Clearer signs of a pick-up in manufacturing activity are drawing droves of foreign funds to Asia's third-largest economy, confident the country's about $1 trillion (Dh3.67 trillion) stock market offers a big opportunity to boost returns.
Data from the Securities and Exchange Board of India show foreign portfolio investors pumped more than $3 billion since the new year began into stocks, a huge turnaround after they had been net sellers of $500 million in 2011.
Foreigners have also been heavy buyers of Indian debt, scooping up $3.2 billion of government securities and private-sector debentures in just over four weeks, in anticipation of a bond market rally when the central bank cuts rates in the coming months.
"Global funds are flush with cash and this is flowing to India because the country is a safer bet for growth," said equity salesman Deepak Shah. "People had overdone the pessimism last year and this has created an opportunity for smart investors."
The Sensex, which has risen for five weeks in a row, has gained nearly 14 per cent this year after slumping a quarter in 2011. It rose 11.3 per cent last month, making it the best January rise since 1994. Banking and financial sector stocks, which had been beaten down last year as high interest rates crimped demand for loans, are rebounding on the back of an improving outlook.
The US jobs data on Friday will underpin world markets, including India, particularly software services companies that get more than half their revenue from America, Shah said.
A stronger US economy could also bolster India's exports, Shah said.
India's manufacturing sector expanded at its fastest pace in eight months in January as factory output surged the most on record, riding higher domestic and foreign demand, pushing the HSBC manufacturing purchasing managers' index to 57.5 from 54.2 in December. The factory output sub-index jumped to 62.9 from 55.8, the biggest rise from one month to the next on record.
"Activity in the manufacturing sector rebounded again in January led by higher demand from both domestic and foreign clients, suggesting some recovery in sentiment in recent months," said Leif Eskesen, economist at HSBC.
The writer is a journalist based in India.
Banks fare better
While a slowdown in economic growth crippled the ability of large corporate borrowers to repay loans on time, higher-than-expected quarterly earnings from lenders such as ICICI Bank, HDFC Bank and Axis Bank showed the concerns about problem loans were exaggerated.
The best performing fund in January was the UTI Banking Sector Fund, with a return of 26.2 per cent, followed by the Goldman Sachs PSU Bank Exchange Traded Scheme at 25.7 per cent.
