The Hindu Business Line : FII outflows

The recent correction in the stock market has resulted in withdrawal of almost $3 billion by foreign institutional investors (FIIs) this year. This suggests a possible turn in the tide as far as overseas inflows are concerned.

The first three months of the calendar typically witness healthy global inflows, since overseas funds re-align their portfolio allocations at the beginning of each year and plough money into markets with potential to yield high returns.

Needless to say that India has been at the forefront in vying for such funds since 2003 on the back of a strong growth and the ongoing consumption boom.

But 2008 has been different. The liquidity contraction following the losses suffered by investors in the sub-prime mortgage market and the risk aversion among investors resulted in funds being withdrawn from stocks markets across the globe and India has not been immune to this global route.

Having said that, the tepid inflows cannot be blamed entirely on the correction in global equity markets. The slowdown in corporate earnings over the last couple of quarters, inflation moving above 7 per cent and the slowing industrial production could have deterred overseas investors. Interestingly, the FII turnover in the period between January and April this year has almost doubled over the same period last year.

This data suggests that though the overseas investors are net sellers, the interest in the Indian equity markets remains high and fresh funds are finding their way into our markets.

Moreover, it would be wrong to extrapolate the data for the first four months to conclude that the FIIs will be net sellers in 2008.

Despite the sharp outflows to the tune of $1.6 billion in May 2006, the tally for that year was $8 billion. Again, our markets attracted almost $9 billion in just two months between September and October 2007.

In short, it is too early to judge if the indifferent attitude of the foreign investors would continue for the rest of the year.

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