Great start to market in FY12, India gets $1billion FII investment

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2012 has begun with a bang for Indian equities. Foreign investors have invested whopping USD 1 billion in just 14 trading sessions.

It's been 14 days into the New Year and Sensex rise over 1,100 points more than USD 1 billion into Indian market. Not many can find much fault with the way 2012 has kicked off. For one, this indicates the return of risk appetite among global investors and this is in large part due to a strengthening rupee and easing concerns over inflation and economic growth.

Experts say if inflation were to clock a rapid decline in the fourth quarter and hit 7% levels by end-march 2012, the RBI will have more headroom to cut rates which will be a big boost to the Indian markets.

Analysts expect GDP growth in emerging economies to be lower in 2012 than in 2011 but these figures will still be higher than that in developed economies.

Institutional investors are showing a preference for high beta stocks like DLF, Tata Steel and Hindalco over defensive counters like FMCG and automotives. However, low trading volumes and the unresolved eurozone crisis is keeping investors cautious.

Andrew Holland, CEO - Equities, Ambit Capital says, "In the worst case scenario which would obviously include differences in Europe and something happening in China, I could easily argue of a Sensex target of 12,000 on the downside. Equally, if you look at the more positive side, of liquidity in China being ok, European countries comes out of debt crises , US continuing to rise in terms of economic growth, you could easily look at 20,000.

Clearly, liquidity seems to be driving the current momentum and investors are waiting to see if fundamentals will catch up and support the rally.