The Hindu Business Line : FIIs pull out $2 billion from equities

Chennai, Oct. 1 Foreign institutional investors pulled out a little over $2 billion in equities from the Indian stock markets in September, according to data released by SEBI. These external investors have pulled out $9.1 billion or Rs 36,792 crore in 2008.

In rupee terms, they net sold Rs 8,278.1 crore in September, which is the third highest monthly pullout in 2008. The net outflow in January was Rs 13,036 crore, while in June it was Rs 10,956 crore. All three months were marked by extreme volatility in the equity markets.

Indian benchmark indices recorded two-year lows in September. The BSE Sensex tumbled by 11.7 per cent and the NSE’s S&P CNX Nifty by 10 per cent last month.

Other emerging markets also witnessed heavy fund outflow as overseas investors fled risky assets in September.

According to Bloomberg data, FIIs have also pulled out from markets such as South Korea ($2.67 billion) and Taiwan ($2.65 billion), over the past month. However, Indonesia saw a positive inflow of $286 million.

According to recent EPFR Global — which tracks country and sector asset allocation data for a broad range of global and emerging market equity and fixed income funds — outflows from emerging bond and equity funds have been around $30 billion over the past three months.

Risk aversion

The rising risk aversion consequent to the credit crunch and financial market tangle has forced overseas investors to pull out from emerging markets, including India.

Many of the beleaguered Wall Street investment banks, such as Morgan Stanley, Goldman Sachs and Merrill Lynch, have been paring back their holdings in the Indian stock markets. Some of these sales were, however, were absorbed by European investment bankers such as Deutsche Securities, Swiss Finance Corporation and Credit Suisse.

However, FIIs were net buyers to the tune of Rs 3,204 crore in debt segment and their total net buying for 2008 stood at $2.18 billion or Rs 8,788 crore.

Positive factors

One positive factor amidst the current bout of selling is data on new FII registrations, which shows that there are many external investors who are biding their time to enter the Indian equity markets.

FII registration has increased 1,517 (main accounts) and 4,620 (sub-accounts) from the end-December 2007 figure of 1,279 (main accounts) and 3,795 (sub-accounts).

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