FII investment in stocks falls to 3-yr low in FY12

Net investment by foreign institutional investors (FIIs) in the stock market during 2011-12 was the lowest in the last three years, at Rs 47,935 crore.

FIIs made a net investment of Rs 47,935 crore in the equity market during the financial year ended March 31, 2012, way below Rs 1.1 lakh crore in 2010-11 and Rs 96,857 crore during 2009-10, according to the Securities and Exchange Board of India (Sebi) data.

In 2008-09 financial year, foreign fund houses had offloaded shares worth Rs 47,706 crore.

Fears of a global economic slowdown and domestic troubles with inflation, interest rates, lack of reforms and the falling rupee all collaborated to make foreign investors cautious in 2011-12, experts said.

Destimoney Securities' Managing Director and CEO Sudip Bandyopadhyay said, "Euro zone worries have pushed the Indian market into risk-aversion mode and other emerging countries are performing better than India, so FIIs are staying away from our market."

However, the January-March period fiscal saw robust inflows. Of the total net investment of Rs 47,935 crore, almost all came during the last quarter of FY12.

Market analysts attributed strong FII inflows in January- March to signs of a reversal in the Reserve Bank of India's (RBI) monetary policy and subsequent impact of the improved liquidity position.

They expect the positive trend to continue, given that the liquidity conditions remain strong.

“FIIs have been infusing money into the Indian market due to change in RBI’s monetary policy that has added liquidity to the system,” Wellindia executive director Hemant Mamtani said.

“The market will continue to witness inflows in the whole year, if liquidity conditions remain strong.”

During the financial year 2011-12, foreign fund houses infused Rs 49,053 in the debt market taking the collective net investments by FIIs in stocks and bonds to Rs 93,725 crore. Experts also said outflow was seen in most sectors, but interest-rate sensitive segments like auto, banking and realty were among the worst hit.

FIIs, the main drivers of the markets, turned negative on equity here last financial year. The stock market barometer , the Sensex, plunged 2,041 points or 10 per cent in 2011-12. The index finished at 17,404.20 points on March 30.

Earlier in January, the government had announced its decision to allow Qualified Foreign Investors to directly invest in the Indian equity market. The move comes against the backdrop of significant foreign capital outflows from the domestic equity market in recent times, which has resulted in the rupee’s volatility.