FIIs' net investment in equities set to cross Rs 1 lakh cr in 2014

Inflows so far this year at Rs 99,413 crore; this will be third straight year of Rs 1 lakh-crore investment

Foreign institutional investors (FIIs) have kept faith in the India story this calendar year (2014). Their net investment in the Indian equity market is set to exceed Rs 1 lakh crore for a third straight year.

FIIs, along with foreign portfolio investors (FPI), have made a net investment of Rs 99,413 crore ($16.47 billion) in Indian stocks till Thursday, according to data with the Central Depository Services (India).

They put in an (net) additional Rs 474 crore on Thursday, from provisional data released by the stock exchanges.

The current calendar year will be fourth in the past two decades when foreign investors invested more than Rs 1 lakh crore in a year. Cumulatively, the foreign investors have made net inflows of Rs 7,85,297 crore ($162.57 billion) in the Indian equity market since 1992.

FIIs had in 2010 made a record net investment of Rs 1,33,267 crore ($29.4 billion). In 2012, they made a net investment of Rs 1,28,361 crore ($24.37 billion) and of Rs 1,13,136 crore ($20.10 billion) in 2013.

Total net investment by FIIs (debt and equity segments) into India so far this year have touched $41.79 billion. Their cumulative total flows into the country have reached $212.79 billion, data show.

Outlook
Analysts believe the global interest rate scenario will be key for future flows into India, as well as for domestic growth indicators.

Ridham Desai, managing director, strategist and head of India equity research at Morgan Stanley, says an increase in US interest rates could derail flows and cause growth problems for India, especially when the country’s macroeconomy is still recuperating. The flip side is that domestic liquidity has been steadily improving due to macro rebalancing at home, he says.

A pick-up in growth, however, can see an increase in the pace and quantum of flows into India, say analysts.

“In our base case, we expect reforms to revitalise real investment growth to 10 per cent a year and pushing potential output growth to 6.5 per cent annually in the next five years. If reforms are fast-tracked, real investment growth could hit 15 per cent a year, in our view, thereby lifting potential growth to above eight per cent,” explains Sonal Varma, India economist at Nomura.

“As growth recovers, equity inflows rise: Portfolio equity inflows pick up quickly, while FDI (foreign direct investment) follows with a lag. Additionally, debt flows - external commercial borrowing and short-term trade credit - are also positively correlated with growth,” she adds.