Dalal Street has turned out to be the hottest investment destination across Asia over the past 12 months. It beat arch rivals - Korea, Malaysia, Taiwan and China - to bag the top spot in the race for big bucks from foreign investors.

Ignoring India's low weightage in the benchmark MSCI Emerging Markets Index, overseas investors pumped more dollars into local markets than other regional heavyweights.

The MSCI emerging markets index has assigned a weightage of 5.8% to India. Korea has a weightage of 17.7%, Taiwan 14.2% and China 8.2%. Between September '03 and September '04, India received $1.4bn from global and regional equity funds, according to one of the most widely used foreign fund trackers, Emerging Portfolios Fund Research (EPFR).

The database compiles flows from over 5,019 equity funds with $1.23 trillion in total assets. Latest EPFR statistics show that these funds invested $899.2m in Korea, $874.2m in Malaysia, $844m in Taiwan and $651.4m in China during the same period.

These figures understate actual inflows since the Boston-based database compiles flows mostly from emerging market funds. For instance, markets regulator Sebi shows net inflows of $6.5bn into India during the one-year period.

Also, while EPFR pegs inflows during September at $452.7m, Sebi statistics put them at $515.1m. However, comparisons with other sources are impossible as unlike India, other Asian markets neither collate nor release net foreign investment numbers.
Most fund managers at regional offices of top FIIs are unanimous on the view that India has been receiving maximum investor attention, especially over the past few weeks. The relative strength of the Indian rupee against the dollar is attracting large inflows and India seems to be acquiring the status of being the region's star and investors' darling, they say.

"We are deploying most of the cash on our books to India. This is much in excess of the traditional weightage assigned to the Indian market in our regional portfolio," said the Hong Kong-based head of one such fund.

Dollar investors have, in fact, turned on the taps for flows into non-dollar denominated assets over the past couple of weeks. India is said to be getting the largest share of the enlarged pie. Inflows during December alone stand at $858m, according to Sebi. November has seen $1.5bn being poured into local shares. Net inflows for '04 now stand at $7.9bn.

As a result of these fund flows, India has become the best performer since September. The MSCI India index has jumped 15.35% (in terms of the dollar), leaving all other emerging Asian markets, except Indonesia (17.11%), behind.

Commenting on foreign fund flows into the different markets, a Deutsche Bank report states: "The dollar slide has promoted a liquidity bubble in Hong Kong. India has continued to star through the rally, largely because people are busy buying a secular bullish story on India - one we happen to agree with." On Korea it states, "We doubt the Korean domestic recovery will be rewarded by the market on a six-nine month view."