Leading the bull charge

FIIs made bigger and smarter bets on India in 2003

The man of the year in the Indian capital markets was undoubtedly the foreign institutional investor.

FII inflows soared to $6 billion sending the Bombay Stock Exchange (BSE) Sensex shooting upwards by 83 per cent this year.

The FII bull charge was led by the biggest American fund management company, Boston-based Fidelity Management, a relative newcomer to the Indian markets.

According to the Securities and Exchange Board of India (Sebi), Fidelity has invested a total of Rs 1,822 crore ($400 million) in the Indian markets since April 2003.

The arrival of Fidelity, the 800 lb gorilla of the fund management business, has altered the ranking table in the foreign investment league.

Janus, the biggest FII investor in the Indian markets till last year, slipped to the second place this year with net investments of Rs 1,389 crore between May and November this year.

"The India story is selling well among the emerging market funds as the country's economic fundamentals are strong and India's growth rate is perhaps the highest in the emerging markets," says Motilal Oswal, chairman and managing director of Motilal Oswal Securities.

The FII at the third place, Morgan Stanley, is a relatively well-known face, with a mutual fund and a brokerage arm.

The Government of Singapore Investment Corporation stepped up activities last year to emerge at the fourth place in the market pecking order, according to Sebi data.

The top 10 FIIs together invested Rs 9,988 crore (about $2.2 billion) in the Indian markets between May and November according to Sebi data with the Finance Ministry. All the FIIs together invested Rs 15,768 crore ($ 3.4 billion) during the same period.

Stock market experts praise the FIIs for their astute moves and say they were the first to latch on to the revival in the manufacturing sector.

Says one market veteran: "Earlier, the FII favourites used to be economy plays or even monsoon related plays. But this year they have started looking deeper into sectoral movements as a whole. They were the first to spot the sea change in the fortunes of the banking sector. Then they picked on the steel and textile sectors."

V V L N Sastry, country head, First Call India Equity, an adviser to several FIIs and hedge funds, adds, "Strong currency appreciation in most emerging markets is one of the biggest reasons responsible for the huge FII inflows in Asia, and particularly India."

N K Sharma, president and CEO, IL&FS Mutual Fund says, "Indian markets continue to be relatively cheaper on valuations (price-earning ratio) than most emerging markets. And that is the reason why FIIs have been particularly active in the Indian markets."

Domestic brokerages and fund managers are sure that the FIIs will be investing even more heavily in the coming year because India's economic fundamentals are looking better than ever before.

Says Sastry: "The India story is still very young. As it unfolds the FII inflows will only increase."

Keep in mind that the money they've put into the Indian market is only small change for the likes of Fidelity and Janus.

Fidelity is the largest mutual fund company in the United States and is one of the world's largest providers of financial services for 18 million shareholders.

Customer assets at Fidelity total $1.7 trillion as of November 30, 2003, including managed assets of $954.3 billion and an additional $748.0 billion for which Fidelity performs record-keeping and other administrative services. Its fund managers for the Asia-Pacific region sit in Hong Kong and feverishly avoid the media glare.

The company employs 28,628 people in the United States and Canada. In India, apart from being an FII, it plans to set up a mutual fund, for which it has already sought approval from the regulatory authorities. It plans to kick off operations in the mutual fund sector with an equity scheme.

Fidelity has also moved another branch of its operations to India. It has set up an outsourcing base in Gurgaon near Delhi.