FII inflows this year 4th highest ever

Late surge jacks net buying up to Rs 73,235 cr so far, aided by strengthening rupee, weakness in other emerging markets

This financial year is among the top five in terms of buying activity by foreign institutional investors (FIIs). This year, FIIs have been net buyers by Rs 73,235 crore, the fourth highest.

The last financial year had seen inflows of Rs 1.4 lakh crore, the highest. Both FY10 and FY11 saw net buying of Rs 1.1 lakh crore.

Vaibhav Sanghavi, director, Ambit Investment Advisors, said, “There have been a lot of factors aiding inflows. It also has to do with the fact that among emerging market countries, India has been one of the more stable ones. In recent times, the currency has been stable due to government and Reserve Bank of India moves,” he said.

Dilip Bhat, joint managing director, Prabhudas Lilladher, said this year, the flows were a continuation of the trend by global central banks to boost liquidity into financial markets, following the global financial crisis. The central banks of the US, the UK, Japan, etc, have adopted a policy of making capital available at near-zero interest rates since 2008.

“The easy money policy adopted by the US, Japan and the UK have provided a tailwind to FII flows…India has attracted flows on account of its relative attractiveness among emerging markets, many of which such as China and Russia have been facing their own issues,” he said.

While China has been facing an economic slowdown, Russian stocks have been affected by geopolitical issues, including a conflict in Ukraine. The Russian currency, the rouble, fell to an all-time low earlier this month.

Foreign investment in India might see be boosted by the appreciating rupee. A Barclays Bank emerging markets research report, authored by Siddhartha Sanyal and Rahul Bajoria, said, “Investment by FIIs into equities remains steady ($11.6 billion). FII investment in Indian debt has seen large swings — outflows of $10.3 billion over April-December have swung to $6 billion of inflows since January. The rupee, which has largely been in a 61-62 range since mid-September, will likely witness a pre-election rally towards 59/dollar.”

A rising rupee adds to the returns of foreign investors.

However, U R Bhat, managing director of Dalton Capital Advisors (India), a registered FII, said flows would be affected by the US Federal Reserve’s decision to start scaling back its $85-billion-a-month liquidity injections (to $55 billion a month). “India could suffer some consequences, especially since markets have been taken to historic highs,” he said.

Bhat added the rupee’s stability would have an impact on exporters. Recent economic data had been disappointing. The Index of Industrial Production, a measure of growth in sectors such as mining and manufacturing, had been declining for the last several months, he said.