The Hindu Business Line : FII investments in equities reach an all-time high

FOREIGN institutional investors' romance with Indian stocks has been more intense in 2003 compared to any other year since their "courtship" started a decade ago.

FII investments in Indian equities, in 2003 to date, have topped the high of $3.06 billion (over Rs 14,000 crore) that came in 1996. Inflows for 2003 now stand at a massive $3.10 billion (as on September 30).

The surge in FII flows has been at the core of the liquidity-and-fundamentals driven rally in Indian stocks.

FII investments breached the 1996 high a month-and-half ago. But a sizeable proportion (about 27 per cent) had found their way into Indian debt paper.

In 1996, FIIs were not allowed to invest in Indian debt, a facility that was opened up for them only about three-and-half years ago. The higher interest rates in India and the cushion offered by the recent appreciation in the rupee's value have led to enhanced FII interest in debt, which account for about 23 per cent of their investments in 2003.

Cumulatively, their inflows into debt and equity as of October is about $4 billion — about 30 per cent higher than the inflows in 1996.

It is quite possible that even if FII inflows become modest during the remaining three months of this year, in keeping with past trends, 2003 will still top the charts as far as the quantum of inflows go.

The pace of inflows into equities has picked up momentum since July after a languid start while flows into Indian debt has tapered off in recent months because of the cap on debt investments by FIIs.

The net inflows in rupee terms at about Rs 14,500 crore are higher by 34 per cent compared to about Rs 10,850 crore in 1996. The higher rupee value is also due to the depreciation in the value of the rupee. The average rupee equivalent for every FII dollar in 1996 was Rs 35.53 while in 2003 it has been Rs 46.92.

The following are some of the notable aspects of FII flows in 2003:

The previous high was exceeded in October itself, with much time to spare in the year.

The inflows in September 2003 at $836 million are the highest for any month since FIIs started investing in Indian equities.

The proportion of FII sales to purchases has been 70.9 per cent in 2003 compared to 31.4 per cent in 1996. This indicates the high level of trading that FIIs do now. The trend of buying and selling large quantities started in late 1996 and has since become an integral part of their operations.

FII purchases in 2003 have been Rs 64,400 crore, with sales at Rs 45,657 crore and net inflows at Rs 18,743 crore. In sharp contrast, the FII purchases in 1996 were Rs 15,739.4 crore while sales was Rs 4,935.8 crore leaving net inflows at Rs 10,803.6 crore. The vast difference in the absolute numbers points to the scaling up of FII operations in India.

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