India seems to be losing its attraction for foreign institutional investors (FIIs), who have pumped in $29.36 billion in calendar year 2010 and brought the Indian equities market out of the morass created by the global financial crisis, curtailing their inflows during the current calendar year to $10-15 billion. That is, inflows in 2011 are not even expected to be half that of last year.
The $29.36 billion amounted to an inflow of Rs 1.33 lakh crore last year, shows the data provided by the Securities and Exchange Board of India (Sebi). This includes FII investment in the new issues market also, besides the stock market. In 2011, this is expected to be in the range of Rs 44,930-67,395 crore, based on a reference rate of Rs 44.93 per dollar.
Another trend that is emerging during the first five months of 2011 is the shift in attraction from equities to debt markets. Experts predict that FII inflows will revive in the second half of 2011, when inflation is expected to start moderating due to the high base effect of last year, bringing down interest rates in due course.
"Foreign inflows into equity market are expected to be in the range of $10-15 billion this year. We may see inflows rising in the second half of the year," said Andrew Holland, chief executive officer (CEO), institutional equities and proprietary trading, Ambit Capital.
FIIs withdrew a net of Rs 182 crore on Friday, according to provisional figures, taking the total funds withdrawn by them to over Rs 3,100 crore during the current month, so far.
Jagannadham Thunugntla, strategist and head of research of SMC Global Securities, said, "India is not a preferred destination for equity investment at this juncture. So, I see only modest FII inflows into equities."
Investors are concerned about the impending slowdown in domestic economic growth and rising inflation already. A series of scams stumbling out of the cupboards of the government has added to the discomfiture of the foreign investors.
Responding to a specific query on the factors that influence FII inflows, Holland said, "It's not only domestic factors, but global factors like commodity prices, interest rate trends in other countries, including that in China, and deployment of global funds in the emerging markets, that will have a bearing on it."
However, nobody has any expectations of the government to give a positive surprise in the form of liberalisation, divestment or governance, Holland added. FIIs have invested a net of $3.58 billion (Rs 16,145 crore) in the debt market, while they have withdrawn a net of $603 million (Rs 2,900 crore) in the current year to date, according to Sebi data.
This is in contrast to the investment of $10.11 billion in the debt market during the whole of 2010. "Even if the inflows surge in the debt market, it does not matter much as the market is not big enough to make much of a difference," Thunuguntla added.
Inflows into the debt market are rising in the wake of rising interest rates with the Reserve Bank of India (RBI) raising policy rates nine times in 16 months to stem rising inflation. However, the number of FIIs and sub-accounts registered with Sebi continues to rise-from 1,718 FIIs and 5,503 sub-accounts as on December 31, 2010, to 1,720 FIIs and 5,757 sub-accounts as on May 20, 2011.
Courtesy: Mail Today