FIIs back, pump in Rs 3,200 cr in 5 days

The Sensex has gained 5.8% since June 9.

After pulling out over $2 billion (Rs 9,000 crore) in May, foreign investors have turned positive on Indian shares in the past few sessions, following a semblance of normalcy in global markets and an improved fiscal situation in this country, Asia’s third largest economy.

In five sessions up to June 16, foreign institutional investors (FIIs) have bought Indian shares worth a net $689.26 million (Rs 3,216 crore), according to data from the Securities and Exchange Board of India (Sebi) website. At Thursday’s close of 17,616.69, the Bombay Stock Exchange (BSE) benchmark, the Sensex, has gained about 5.8 per cent, or 958.8 points, since June 9.

FIIs bought shares worth Rs 462.60 crore on Thursday in the cash market, showed provisional data on the BSE website. This was the sixth consecutive session when they were net buyers.

FII investments play a crucial role in deciding the direction of India’s stock markets. After pumping in $17.46 billion in 2009, they have net-purchased Indian shares to the tune of $5.55 billion this year till now.

“There is some comfort due to economic indicators coming out of India and a lull in Europe’s markets,” said U R Bhat, managing director at Dalton Capital Advisors (India), a Sebi-registered FII. “However, things might change if the situation in Europe worsens.”

India’s industrial production grew 17.6 per cent in April, indicating buoyancy in the country’s economy. The one-time bonanza from auctions of 3G and broadband wireless access (BWA) spectrum also allayed fears over the fiscal situation.

The government has received Rs 1,06,000 crore from these auctions, three times more than it had anticipated in the Union budget. This additional money was expected to reduce the country’s fiscal deficit by one percentage point to 4.5 per cent of the gross domestic product by financial year ending March 31, 2011 (FY11), from the government’s estimate of 5.5 per cent.

“We believe that an improving fiscal position will translate into better flows for India versus other emerging markets,” said Suresh Mahadevan, head of research at UBS Securities, in a recent note to clients. Mahadevan has a Sensex target of 22,000 for FY11.

However, it is not going to be a strong one-way rally, experts say. “There needs to be positive momentum in the global economy for the index to move up substantially from here,” said Huzaifa Husain, head of equities at AIG Investments in India. “Individual stocks would deliver more returns than the index.”