FII inflows hit record Rs 80,000 cr-mark in 2009

New Delhi, Dec 24 : After their flight last year,foreign institutional investors flocked back to bet on theIndia growth story by pouring in a record over Rs 80,000 crorein domestic equities in 2009.

The FII investment of Rs 80,500 crore in 2009 is thehighest ever inflow in the country in rupee terms in a singleyear and comes a year after they pulled out over Rs 50,000crore. FII inflow so far this year has broken the previoushigh of Rs 71,486 crore parked by foreign fund houses in domestic equities in 2007.

Market analysts believe that the FII inflow in India maycontinue in the next year as well, if the liquidity conditionsremain strong.

"FIIs will continue to be positive on our markets and ingeneral Indian markets will fare well in 2010," PurplelineInvestment Advisors director P K Agarwal said.

Delhi-based SMC Capitals Ltd's Equity Head JagannadhamThunuguntla echoed the view, saying, "If liquidity conditionsremain strong next year, one can expect FII inflows to remainstrong into India even in 2010 as well."

During a year when the stock market barometer added over70 per cent to its valuation, foreign institutional investors(FIIs) made a net investment of whopping over Rs 80,500 crore(about 16.8 billion dollars) in the Indian share market.

The Bombay Stock Exchange's benchmark Sensex, comprising30 bluechip stocks, has gained more than 70 per cent so far in2009, one of the best performer among leading global bourses.

"However, if dollar-carrytrade-unwinding starts, then onecan expect rush of FII outflow from the country, resulting inpressure on Indian markets," he cautioned.

Significantly, last year the FIIs had pulled out a net Rs52,900 crore from the domestic bourses --a trend triggeredwith the collapse of global financial services icon LehmanBrothers in the middle of September 2008.

This selling trend continued till the first two months ofthe passing year.

However, with the sign of revival of economies, the trendturned positive during March and overseas investors startedbetting big on the domestic bourses.

"As the liquidity conditions started improving after thegovernments across the world started putting in the stimuluspackages, FIIs again tried to come back starting March 2009,"Jagannadham explains.

As they came back, even Indian markets staged big rally.Moreover, FIIs don't have many other choices but for comingand investing in the high growth economies of India and China,he added.

The trend of strong FII inflows to the tune of Rs 31,000crore (about 6.3 billion dollars) witnessed during April-Junequarter gained further during the September quarter this yearand the period witnessed an infusion of hefty Rs 34,313 crore.

So far in the December quarter, foreign fund houses havemade a net investment of about Rs 22,000 crore in the stockmarket, amid a period that witnessed the Dubai debt crisis.

Moreover, in the debt instruments, FIIs have made a netinvestment of about Rs 5,200 crore (1.1 billion dollars) sofar in 2009, according to the market regulator Sebi data.

Interestingly, the whopping inflow by FIIs into the localstock markets has alarmed the government and other authoritiesconcerned.

The inflow has also made industry chambers like Assochamdemanding a two-percentage point tax on FII funds, whereas theexporter body FIEO (Federation of Indian Export Organisations)demanded government intervention to contain the flow.

According to the FIEO, the FII inflow had been making therupee stronger against the American greenback, rendering theexports incompetent from price angle.

Last month, the government said record investments in theequities market by FIIs was not a matter of concern, but itwould act if it finds any distortions.

"It (FII inflows) is not a matter of concern. We have asystem of monitoring. Whenever we find that there are somedistortions, we have the arrangement to counter them.Therefore, it is not disturbing," Finance Minister PranabMukherjee had said.

However, describing the foreign capital inflows as thesuccess story of India's recovery, Reserve Bank DeputyGovernor Subir Gokarn recently said that the inflow should notbe viewed as a threat at this point of time.

"You could see them as a positive sign which is that theyreflect increasing global confidence in Indian recovery," thenewly appointed Gokarn had said.

During the year, the number of registered FIIs increasedby 114 to 1,708, while the tally of registered sub-accountsrose by 458 to 5,330, according to the Sebi data.