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When the FIIs come marching in

It’s now raining inflows. Says Andrew Holland, Chief Administrative Officer, EVP DSP Merrill Lynch: “The Fed reduced interest rates and that has freed the credit market and also increased investors’ appetite towards risk marginally.”

By Clifford Alvares | Print Edition: October 21, 2007

Foreign investors are pouring in the moolah, and the trend is here to stay.

At the beginning of the year, foreign fund inflows in the country were negative as January saw an outflow of $482 million (Rs 2,121 crore) and the market mood was sombre as market watchers debated whether foreign investors will continue to prefer India. By June, the current improved marginally but total inflows till then were just about $4.3 billion (Rs 17,630 crore) suggesting that this could be another mediocre year for the inflows.

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Then came what appeared like a deluge—July saw the year’s biggest foreign fund inflow of $5.8 billion (Rs 23,200 crore). Foreign investors took a fresh look at the Indian stock market as companies reported bumper results for the first quarter of financial year 2006-07 and the consensus view of the market changed from an also-ran to that of an outperformer.

But when August came around, the US sub-prime mortgage issue threatened to balloon into a global credit crisis and foreign investors withdrew $1.9 billion dollars (Rs 7,790 crore).

But the US Federal Reserve defused the situation with a 50 basis points cut in the lending rate. That move saw foreign investors pouring in more than $2 billion (Rs 8,000 crore)—it added 1,000 points to the Sensex in a week—and taking the total inflows this year to a record $12.2 billion (Rs 48,800 crore) surpassing calendar year 2005 peak.

It’s now raining inflows. Says Andrew Holland, Chief Administrative Officer, EVP DSP Merrill Lynch: “The Fed reduced interest rates and that has freed the credit market and also increased investors’ appetite towards risk marginally.” These days, foreign investors are making net purchases on average of Rs 1,000 crore.

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Will they continue to invest? India’s growth story is attracting more new foreign investors—their numbers have doubled in the last four years (see On a Shopping Spree).

They have also upped their stakes in many companies to record highs (see The Toppers List) and also have been big buyers last year (see The Shopping List). For now, market experts opine that over the long-term, India’s growth engine is steaming steadily ahead for foreign investors to ignore.

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