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After pouring hefty funds into the Indian equity market in the first three months of the year, overseas investors turned bearish in April and pulled out Rs 777 crore amid S&P lowering India’s credit outlook to negative from stable.
This was also the first instance of monthly net outflows by FIIs since November 2011.
In the current month so far, Foreign Institutional Investors (FIIs) made gross purchase of equities worth Rs 39,008 crore and sold shares valued Rs 39,785 crore translating into a net outflow of Rs 777 crore, according to data available with the market regulator SEBI.
GAAR proposal, S&P's move
Market experts attributed the outflow to a host of factors including government’s anti-tax avoidance rule (GAAR) proposal announced in the Budget. This has been the real dampener for several FIIs whose clients had used participatory notes to invest in the Indian stock market.
The sentiment was further soured by ratings agency S&P’s move to lower India’s outlook to negative from stable, citing slow progress on its fiscal situation and deteriorating economic situation, experts added.
In fact after S&P’s move, FIIs have withdrawn nearly Rs 1,300 crore from the stock market in the last three trading sessions.
Record inflows
In the first three months of 2012, FII had invested a record Rs 43,951 crore. Of this, Rs 10,358 crore was poured in January, Rs 25,212.10 in February and the rest Rs 8,381 crore in March.
The strong FII inflows in January to March was attributed by marketmen to the Reserve Bank of India’s (RBI) pause in rate hikes and the improving liquidity position.
During April, foreign fund houses pulled out Rs 777 crore from the stock market and Rs 2,111 crore from the debt market, taking the collective net outflows by FIIs in stocks and bonds to 2,888 crore.
FIIs, the main drivers of the markets that gained nearly 13 per cent in the first three months of 2012, have turned negative on equities so far this month.
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