Concerns deepen over troubled Indian stock markets as the China's red-hot initial public offering (IPO) heats up further. Foreign investors appear to be preparing to pull out their money from Dalal Street and invest in lucrative IPOs in China.
As many as 20 Chinese companies have lined up to issue IPOs this week amounting to $483.19 billion, intensifying worries of outflows from other countries including India.
Impressive post-listing performance of Chinese IPOs has created frenzy among the investor community. In the past one year, all the IPOs have generated more than 40% returns on listing.
"We have heard from sell-side brokers that some of the selling in India is attributable to the fact that Chinese markets have outperformed India," Nilesh Shah, MD, Kotak Mutual Fund, told The Economic Times.
Recent controversy over Minimum Alternate Tax (MAT) led to high volatility in domestic stock markets in recent trading sessions, as overseas investors aggressively sold their shares.
Foreign investors have sold shares amounting to over $2 billion or nearly ₹14,000 crore in the past 15 trading sessions, NDTV Profit said.
The Chinese securities regulator has been fast accelerating its nod for IPOs in a bid to cool down its skyrocketing stock market performance. Last Friday, the regulator approved a batch of IPOs for the second time in less than a month.
"Regulators have said they would accelerate IPO approvals and we're seeing it happen," Zhang Chen, analyst at Shanghai-based Hongyi Investment, told Reuters.
The Chinese authorities have been initiating many measures to curtail the speculative activity in its equity markets. Despite a sharp decline in recent sessions, the Chinese stocks still trade at multi-year highs, with a gain of 34% so far this year.
The China's Shanghai Composite Index is up 122% since January 2014, supported by increased buying by the retail investors.
Will China's IPOs Attract FIIs in India?
Analysts see limited scope for foreign investors, who have their holding in Indian equities, to participate in the forthcoming $200 billion IPOs in China. The total share holdings of overseas investors in India stand at over $300 billion, so offloading a part of their holdings may offer a little liquidity to subscriber for Chinese IPOs.
There is no evidence of 'any large-scale' selling of shares by foreign institutional investors (FIIs) so far although the Chinese IPO boom has started a few months back. Recent sell-off in Indian stock markets is largely due to uncertainty over retrospective tax and weak corporate earnings, Business Standard reported.
Instead, China IPOs are having an impact on its own markets, with the benchmark index declining by around 10% in recent sessions. Investors are selling their shares to buy IPOs.
However, with the Chinese equity market outperforming India's, many global money managers are reshuffling their portfolios to include Chinese stocks.