FY13: Record year for FII inflows

Net buys of Indian equities stood at Rs 1.4 lakh crore, highest since FII investment allowed in the segment

Foreign institutional investors (FII) poured more money into Indian equities in the financial year ending March 2013 than they have in any year since they were permitted to invest in these, 21 years ago.

They were net buyers by Rs 1.4 lakh crore during the year, according to data from the stock market regulator, the Securities and Exchange Board of India. This is higher than both FY10 and FY11, both of which saw net inflows of Rs 1.1 lakh crore.  They bought an average of Rs 564.6 crore in every one of the 248 days of trading during the year, the last of which was on Thursday.

Prateek Agrawal, chief investment officer, ASK Investment Managers, stated that global liquidity helped inflows into India. “We were also aided by a spate of reforms in the September to December quarter, which turned sentiment positive for India. Also, some of the public sector divestments are likely to have attracted FII interest, adding to the inflows,” he said. (PUMPING MONEY)

Daljeet Singh Kohli, head-research at IndiaNivesh Securities, believes the flows are likely on this scale for the time being. “There should be no major change…unless there are elections, which could create uncertainty over the reforms process and the government’s fiscal situation,” he said.

The spectre of early elections was raised following pullout of the DMK from the ruling government, followed by tensions with other allies. However, Morgan Stanley in a recent report said there was little chance of early elections, considering the time required for political parties to prepare themselves, ruling out elections till at least December.  

During the year, domestic institutional investors were net sellers by Rs 69,069 crore, according to stock exchange data. Mavens suggest this is due to large government owned insurance entities selling equities and loading on cash to cushion the government divestment program. To add to this, mutual funds (MFs) have been faced with exiting investors.

Harsha Upadhyaya, senior vice-president and head of equity at Kotak Mahindra Asset Management Company, attributed the selling to investors pulling out money from funds. “The selling has been largely led by redemptions. MF managers are not selling to increase their cash levels,” he said.

Investors have withdrawn Rs 15,354 crore from MF schemes which invest in the stock market, according to February-end data from the Association of Mutual Funds in India.

Agrawal says the outlook for FII flows remains positive. “While one cannot expect it to continue with the same pace, the flows are expected to remain robust for FY14. One would, however, have to keep an eye out for central banks reversing the supply of liquidity that they have been pumping into the global financial system,” he said.