Fund flows from FIIs have crossed the record Rs. 97,900-crore mark this year and is all set to breach the magical Rs. 1,00,000 crore mark - for the first time since they were allowed invest here.
An analysis of the data available with the capital market regulator Securities and Exchange Board of India shows foreign institutional investors (FIIs) have made a net purchasing of stocks worth Rs. 97,955.50 crore (USD 21.42 billion) so far in this year.
And going by the pace in which the inflows is coming in here, market analysts believe in this week it will breach the Rs. 1,00,000 crore mark, for the first time in history.
The net purchase of Rs. 97,955.50 crore (USD 21.4 billion) is the highest ever investment by the overseas firms in any single year in India. The current inflows have surpassed the record level (in dollar terms) of USD 17.6 billion in domestic equities during 2007.
Last year, FIIs were the net purchaser of shares worth Rs. 83,423 core, the highest ever in rupee terms. During the same year, the stock market benchmark Sensex had recorded a gain of over 80 per cent.
“With the economic activity gaining pace, it is believed that Indian market would continue to see overseas buying,” SMC Global Securities Research Head (Retail) Saurabh Jain said.
Moreover, the government’s plans to mop up money by selling its stake in public sector companies, including the mega IPO of Coal India Ltd, will give more investment opportunities to investors, he said.
The sharp rise in FII flows to Indian stocks has pushed up the market. The BSE benchmark Sensex climbed over 10 per cent in September, a month when the index re-gained the magical 20,000 level after a gap of 32-months.
This whopping capital inflow has also raised an alarm.
But the finance ministry had said that it did not see a need to curb FII flows.
Many analysts fear that this whooping inflow is creating a bubble in domestic market, which may crash once FIIs start pulling out their money.
However, market experts do not see any sharp correction in near term, as they say India has better economic conditions for these investors than many advanced nations.
“As long as the India is on a growth path, I don’t think we should think of certain reversal. Certainly, there will be a slowdown because there will not be all years in which we will see massive inflows, but that is something as the system grows, it learns to deal with these things,” SEBI Chairman C.B. Bhave had said last week in an interview to a news channel.
RBI Deputy Governor Subir Gokarn said the central bank could intervene in forex markets if capital surge leads to any disruptions.
Interestingly data available with the SEBI shows that for the last five years now, September has seen the highest FII activity in a single month, whether it be inflows or outflows.
Domestic institutional investors were actually net sellers to the tune of USD 4.6 billion in last quarter, according to an analysis by domestic brokerage house Motilal Oswal.
Even more interestingly, of the over USD 21 billion, USD 12.6 billion (over 50 per cent) of FII inflows came in September quarter alone.
In fact, this quarterly figure is higher than the annual inflows of past several years (barring CY’07 and CY’09).
Further, nearly half of the quarter’s inflows were in the month of September alone (USD 5.42 billion).
According to a report by the Institute of International Finance, private sector investments in emerging markets, which includes India and China, is projected to touch a whopping USD 825 billion, mainly spurred by strong growth.
Last year net private capital flows to emerging economies was at USD 581 billion, according to Washington-based IIF.
The International Monetary Fund raised its 2010 economic growth forecast for India to 9.7 per cent from 9.4 per cent, citing strengthening local consumer demand.
On robust FII flow, the rupee during the past week touched a 25-month high. As a matter of fact Indian rupee gained 4.5 per cent in September.