Sunday, April 18, 2010

Major foreign pension funds are here to stay ..........

ONE of the major reasons for India's out performance compared with other Asian and emerging markets in the past 12 months is continued buying by some of the largest long-only funds.

In 2007, there were many long-only pension funds that did not invest in India, given the high valuations our broader market indices such as Nifty and Sensex had reached. But Indian stocks are must in every global fund manager's portfolio, given the growth potential of the Indian economy.

So, a large number longonly pension funds bought Indian stocks when the market was near its low in April 2009. In fact, if we look at FII buying figures during that period, it is clear that more than Indian institutions and domestic investors it was foreign institutional investors, especially long-only funds that were more confident in the Indian growth story and at times pumped in millions of dollars in a single trading ses years or, in some cases, even longer, don't chase stocks. They use large corrections to enter economies that they believe are going to grow over the next couple of decades. This is what happened with India in 2009.
Unlike hedge funds, which were large buyers in the Indian market during the bull run of 2007 and panic sellers in 2008, these longonly pension funds don't sell in short-term corrections, which happen in markets every now and then. In fact, they use minor corrections in indices to buy into companies they have identified for investment.

This has reduced volatil ity in Indian markets in the past 12 months. While it might surprise some investors, the top seven funds of the world did not invest even a single penny during the bull run that lasted from 2003 to 2007. They just kept a close watch on how the long-term India growth story was panning out, and, once convinced about it, they came with plenty of dollars.
The first signs that longterm pension funds are the ones who are pumping money into India came in April to June 2009, when FII holding in large-cap companies surged.
These long-only funds turn into sellers only when there is a serious and major policy shift in a country or any negative development takes place in a company, like what happened in Satyam.
Over the next few years, we are unlikely to see any major selling by these funds as Indian investment forms only a minuscule portion of their emerging market portfolio. DOW sion.
These pension funds, which invest with a perspective of more than five 8,168.12 April 30, 2009 Chrysler files for bankruptcy 8,185.73 April 29, 2009 First quarter GDP falls at an annual rate of 6.1 per cent 8,721.44 June 1, 2009 General Motors files for bankruptcy 8,472.40 June 25, 2009 Revised first quarter GDP decreases at an annual rate of 5.5 per cent 9,093.24 July 24, 2009 Dow closes above 9,000; first time since January.

Federal minimum wage jumps from $6.55 an hour to $7.25 an hour 9,096.71 July 28, 2009 Case-Shiller index shows first rise in US housing prices in 3 years.

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