FIIs, ECBs dominate capital inflows in third quarter

Reflecting the buoyant capital market, the share of investments by overseas investors and external commercial borrowings (ECBs) by Indian companies rose in capital flows during October-December, 2010.

However, inflows under foreign direct investment (FDI) and short-term trade credits moderated in the three months. As a result, the capital account surplus rose marginally to $14.9 billion in the third quarter of 2010-11, compared with $14.6 billion a year ago, according to Reserve Bank of India data.

Net inflows by foreign institutional Investors (FIIs) rose to $ 7.2 billion in the third quarter of 2010-11, compared with $5.3 billion in October-December 2009.

RBI said the gross inflows and outflows under FII investments in the quarter almost trebled, reflecting large oversubscriptions to Coal India's initial public offering in October, 2010, and the repatriations thereafter.

Net ECBs were significantly higher at $3.6 billion during the quarter, compared with $1.7 billion a year ago, primarily owing to higher disbursements of commercial loans to India. RBI said banking capital recorded net inflows of $4.9 billion in the third quarter, compared with net inflows of $1.9 billion a year ago, mainly due to draw-down of foreign assets of commercial banks.

Net FDI flows (net inward FDI minus net outward FDI) moderated to $2.1 billion from $3 billion a year ago due to lower net inward FDI during the quarter.

With capital account surplus being higher than the current account deficit, there was a net accretion to foreign exchange reserves of $4.0 billion during the quarter ($1.8 billion a year ago). In April-December 2010, net capital inflows increased significantly to $52.7 billion from $37.6 billion a year ago, driven by higher net inflows under FII investments, external assistance, short-term trade credits, ECBs and banking capital Notwithstanding the significant increase in net capital inflows, accretion to reserves during April-December 2010 was marginally lower, primarily due to the widening current account deficit compared to April-December, 2009.