FII inflows hit $20-bn in 2013; take total to $150 bn

The inflows are expected to improve further in 2014 as the state assembly election results have brightened the chances of a BJP-led govt at Centre

Reposing their faith in Indian markets, foreign investors have made net inflows of a staggering amount of Rs 1.10 lakh crore (nearly $20 billion) in stocks here during 2013, while taking their cumulative investments in the country's equity market to a record level of close to $150 billion.

The final numbers for 2013 may even exceed the level seen in 2012, when FIIs made a net infusion of Rs 1.3 lakh crore (24 billion) in equities, as a few days are still left in the current calendar year.

According to experts, the inflows are expected to improve further in 2014 as the state assembly election results have brightened the chances of a BJP-led government at the Centre, on which foreign investors are said to be putting their bets.

At gross level, Foreign Institutional Investors (FIIs) purchased stocks worth about Rs 7.8 lakh crore in 2013 and sold equities to the tune of Rs 6.7 lakh crore -- translating into a net inflow of Rs 1,10,792 crore ($19.7 billion) so far.

This was the second consecutive yearly inflows by foreign investors after pulling out a net amount of Rs 2,714 crore (USD 358 million) from the share market in 2011.

Despite their unpredictable 'hot money' investment, these overseas entities have been amongst the most important drivers of Indian stock markets.

The huge inflows came despite the number of FIIs registered in India dipping to 1,742 this year from 1,759 at the end of 2012.

Many market experts expect a BJP-led government would be more pro-reform and speed up legislative steps needed to spur economic growth.

Destimoney Securities MD and CEO Sudeep Bandhopadhyay said, "FIIs are expected to be bullish on the Indian stocks in 2014, despite the US Federal's decision on tapering."

"FIIs are looking forward to a stable government that can move reforms process faster, irrespective of which political party comes to power at the Centre next year. Besides, a strong performance by BJP in the recent assembly elections have further strengthen the chances of a stable government at the Centre," he added.

This is the third time in history that net FII inflows for a year have crossed the Rs 1 lakh crore mark and analysts are optimistic about the next year. In 2010, overseas investors had made a record Rs 1.33 lakh crore ( 29 billion) net investment into the share market.

However, FIIs have kept away from the debt market and pulled out net sum of around Rs 51,000 crore ($8 billion) during the year in the segment due to weakness in the Indian currency. In 2012, overseas investors had pumped in nearly Rs 35,000 crore ($6.64 billion) from the debt securities.

Since opening up of Indian markets for FIIs in 1992, they have made a cumulative net investment of Rs 6.8 lakh crore (USD 145.7 billion) in shares and withdrew Rs 1.05 lakh crore ($25 billion) from the debt segment.

After a stunning 2012, FIIs began 2013 on a positive note and infused more than Rs 46,000 crore in the first two months on the back of various reforms initiated by the government. FIIs continued their positive bias towards Indian equities till May, but the pace of investment slowed down.

However, overseas investors became net sellers of equities between June and August as the US Federal Reserve's announced that it would taper its quantitative easing strategy.

FIIs, once again flocked towards Indian stocks and bought bagful of stocks in September as RBI Governor Raghuram Rajan announced slew of measures to boost the weakening rupee and revive economic growth. After that the inflows continued till the year-end.

"FIIs invested hugely in the domestic equities markets in 2013 because Indian equity markets gave one of the best returns among the emerging countries. Most of the funds were invested in large-cap stocks," Ostwal said.

Bandhopadhyay said, "FIIs showed confidence in the Indian equities during 2013, because Indian markets have given good returns."

According to market experts, FIIs preferred sectors like software, pharmaceuticals and biotechnology; financial services and food, beverages and tobacco among others.

As per Sebi data, the total number of registered FIIs dropped to 1,742 as on December 20, the second straight decline, from 1,759 last year.

However, the number of registered sub-accounts pegged at 6,392 against 6,359 in 2012. The sub-accounts include foreign firms, individuals and institutions on whose behalf FIIs make those investments.