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Foreign institutional flows cross $20 billion mark

Net inflow so far in 2012 is the second highest since their entry into the Indian capital market in 1992.

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India has been one of the favourite destinations for foreign institutional investors (FIIs) in 2012 with their flows crossing the $20 billion mark thus far.

According to the data from the market regulator, the Securities Exchange Board of India (Sebi), have pumped in net $20.23 billion (Rs 105,722 crore) so far in the current calendar year 2012, as compared with a net outflow of around $358 million (Rs 2,714 crore) in calendar year 2011. All this has made the Indian markets one of the best performers globally, rising 26 per cent year-to-date.

The abundant liquidity and the positive sentiment seen since the start of the calendar year 2012, was further boosted by a slew of reforms announced by Finance Minister, P Chidambaram, and improvement in India Inc's second quarter earnings.

"Apart from the liquidity injection globally, the reversal in sentiment during September was also triggered by bold reform actions of the Indian Government which allayed fears of rating downgrade in the near term," notes Amar Ambani, Head of Research, IIFL.

Out of total net inflows, almost half or $9.9 billion (Rs 52,266 crore) came in past four months after the recent reforms initiatives taken by the Indian government to boost economic growth and investor sentiment.

“Starting in September 2012, the government has announced measures to spur infrastructure development, allow increased foreign investment, and rein in the fiscal deficit,” according to rating agency Moody’s.

The net inflow made so far in 2012 is the second highest net inflow by FIIs in a single calendar year since their entry into Indian capital markets in 1992. In 2010, overseas investors had made net investments of about Rs 133,266 crore ($29 billion).

Moody's said it expects GDP growth to be around 5.4 per cent in FY 2013 and 6 per cent or higher in FY 2014 as expansion gathers momentum. However, in Moody's view, given the delayed timing and still modest scope of these measures, growth may remain subdued in the near term amid continued domestic political uncertainty and a global slowdown.

Analyst expects inflows will continue in the coming months as well. “We are positive in terms of FII inflows for 2013. Since, there are no clear growth drivers in the developed markets, more and more global investors are looking at emerging markets specifically which are driven by domestic factors. And within that, India fares well,” said Jignesh Shah, executive director, Sarasin-Alpen (India).

“Domestically, interest rate cuts, creation of the NIB for fast tracking project clearances, a smooth winter session (which I highly doubt) wherein major bills like land acquisition, pension etc are passed could be triggers that could aid the market sentiment,” adds Rahul Arora, CEO- Institutional Equities, Nirmal Bang.

Meanwhile, the share of FIIs in free-float market capitalisation of top 100 companies touched a six-year high of 37.95 per cent, up from 35.48 per cent at the beginning of 2012, the latest shareholding patter data suggests. Top 100 companies account for 72 per cent of the total market capitalisation of the Bombay Stock Exchange.

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