FII inflows top the $150-bn mark in India

Domestic investors worried about the increasing influence of foreign money in domestic markets

Even as foreign institutional investors (FIIs) have crossed the $150-billion mark in net investments in Indian stocks over the past two decades, domestic investors are concerned about the markets’ dependence on foreign money.

“Global money is restless,” says Jagannadham Thunuguntla, equity head at SMC Capital, a Delhi-based domestic brokerage. “The future will depend on how the Reserve Bank of India (RBI) and the finance ministry come together to fuel the growth,” he added.

Yesterday, the banking regulator had lowered its gross domestic product (GDP) growth forecast to 5.7 per cent from 6.5 per cent for 2012-13. According to the data published by capital markets regulator Securities and Exchange Board of India (Sebi), FIIs have had a net investment of $152 billion till October 30. In October alone, FIIs put in $3.5 billion, which took the total value above the $150-billion mark.

“We cannot allow so much of dependence on FII inflow,” said Prithvi Haldia, chairman and managing director, Prime Database, a financial services company. “Domestic investors are shying away from the capital markets. Hope this is corrected soon,” he said.

According to a research report by global investment banking firm Morgan Stanley, FIIs raised their aggregate holding in the country's top 75 companies to a six-year high of 21.6 per cent in the July-September quarter. This is an increase from 19.3 per cent at the end of the April-June 2012 quarter, short of the record of 22 per cent scaled in mid-2005.

“Unlike FDI, FIIs tend to be volatile. But their continued participation and having crossed the $150-billion mark indicates that India’s long-term growth potential is validated and it continues to be attractive,” said Ajay Garg, managing director, Equirus Capital, a Mumbai-based investment banking firm.

Sebi’s data since November 1992 show FIIs have made $119.6 billion of net investment in equity and $32.4 billion in debt through stock exchanges, primary investments or other routes.

According to the regulator’s records, there are 1,751 registered FIIs in India. Sensex, the benchmark index of the Bombay Stock Exchange, has risen to 18,415 from 2,929 in this period.

“At times, volatility in stock markets gets enhanced with more FII money, due to global factors not directly related to India,” said a senior executive at ICICI Securities, who did not wish to be quoted.

“But there are also benefits of integration with global capital markets, which brings global standards of scrutiny,” he added.