No longer hot: FII flows to India down 36% so far in 2013

Arvind Jayaram BL Research Bureau | Updated on March 12, 2018


Also pull out over $7 b; move to Japan, US, Pakistan

Foreign institutional investment in India is down 36.2 per cent so far in calendar 2013, signalling that the country can no longer claim to be among the hottest global investment destinations.

Portfolio investors have instead shifted their sights to countries that offer higher returns, such as Japan and even Pakistan.

The latest data show that FIIs pumped $9.3 billion into Indian equities and debt during the January 1-July 23 period. The net inflows would have been higher had it not been for a sudden reversal in investor sentiment in June, when FIIs pulled out $5.6 billion from the debt market. Around $1.8 billion also flowed out from the equities segment, which can be largely attributed to FIIs offloading stake in Hindustan Unilever under the company’s share-buyback programme. The pullout trend continued in July, with the withdrawal of $2.9 billion by FIIs up to July 23 in a sign of wariness among foreign investors.

Japan gains

So, where have the FIIs been deploying their money instead? It appears that a chunk of the funds sucked out of the Indian market could have been redeployed in Japan, which saw net portfolio investment inflows of $8.8 billion in the first 23 days of July.

In the seven days leading up to July 23, Japan attracted $4 billion of fresh FII money. Net FII inflows into Japan were up a staggering 1,495.2 per cent in the first seven months of the year — a whopping $94.4 billion. The Nikkei is up 41.7 per cent this year compared with a 3.2 per cent rise in the Sensex.

Investors have also begun ratcheting up their investments in the US, with the world’s largest economy on the road to recovery at long last. Data from the US Federal Reserve indicate that foreign investors have hiked their holdings of US corporate bonds by $12 billion in the first five months of 2013. In the corresponding previous period, they had pulled out $26.6 billion from US corporate bonds.

Foreign investment in US treasury bills was also up 7.5 per cent in the January-May 2013 period. However, the US equity market saw lower net foreign capital inflows of $13.6 billion in the first five months compared with $21 billion in 2012.

This situation is likely to have changed dramatically in June that saw the dollar post significant gains against a basket of global currencies, heightening the attraction of US investments. The Dow Jones index is up 18.8 per cent this year and the Nasdaq, 18.5 per cent.

40-fold rise

During 2013, Pakistan reported a huge 40-fold increase in foreign investment flows, at $435.4 million. This saw the Karachi-100 rising 40.5 per cent so far this year.

Emerging markets, such as the Philippines, also seem to have moved out of the FII radar this year, with a 24 per cent decline in net inflows. Indonesia and Thailand have seen net FII fund outflows during the year. .


Published on July 25, 2013

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