News: Indian FII inflows cross $4 bn mark

(FE 06/04/2006) Mumbai - The impressive returns given by Indian equities have received yet another stamp of approval and this time by the prime drivers of the bull run, the foreign institutional investors (FIIs) themselves. The net FII inflows in Indian equities have crossed the $4 billion mark in the current calendar year (CY06). As on April 4, FII inflows stood at $4.03 billion.

Interestingly, experts opine that the Indian markets have become a global force and the coming days will only further cement India’s place in the global arena. This will, in turn, attract more and more FIIs to the country, too. Uday Kotak, managing director, Kotak Mahindra Bank, said, “I expect that in the next five years, if nothing goes wrong, India will be the second largest capital market in the world after the US. The current trading volume on Indian bourses is $10 billion and I expect it to be $30-40 billion in the next 3-4 years.”

A section of market participants is also of the view that while on one hand, Indian equities look a bit overvalued, on the other hand, they have been able to outpace most of the other global and emerging markets in the recent past. This will only lead to an increase in the inflows to the equity markets. However, it seems that the dependence of the markets on foreign inflows is dipping at a time when the bourses are moving further northwards. This can be clearly seen if one compares the movement of the benchmark Sensex of the Bombay Stock Exchange (BSE) with the FII inflows. In the Sensex’s journey from 7,000 points to 11,000 points, the addition of every subsequent 1,000 points has seen lesser amount of FII inflows with the exception of the move from 8K to 9K.

The rise of the Sensex from 10,000 to 11,000 levels witnessed FII inflows of only $2.31 billion. Contrary to this, when the Sensex rose from 9,000 to 10,000, it was pegged at $ 3.1 billion. The journey from 7,000 to 8,000 also saw higher FII inflows of nearly $4 billion. The recent past also witnessed huge mobilisation from the domestic mutual fund industry and they have also played an important role in the rise of the equity bourses. Incidentally, in the current calendar year, February proved to be the best month with FII inflows pegged at $1.7 billion. March also witnessed net FII inflows at $1.5 billion. In Jan, FII inflows were pegged at only $737.50 million.