The role of foreign investors in the Indian capital market is gaining significant momentum, as foreign stake in Indian companies has shown a sharp upturn in the quarter ended September 30, which saw net inflows of $12 billion.
According to an analysis of BSE500 companies for the July-September quarter, the market share of foreign investors including foreign institutional investors (FIIs), American Depository Receipts (ADRs) and Global Depository Receipts (GDRs), has risen at the cost of domestic mutual funds.
For the September quarter, the market share of FIIs, ADRs and GDRs taken together in BSE500 has risen to 17.8 per cent, while domestic mutual funds' percentage of the total pie has declined to 3.76 per cent, even as the insurance share remained flat at 5.25 per cent, Religare Capital Markets said in a recent report.
"Foreigners are pumping in money into Indian shores, because of the resilience of the Indian economy. Just after the crisis we have bounced back quite sharply, as against the developed economies," Ashika Brokers Research Head Paras Bothra said.
The capital inflow of a whopping $12.5 billion got reflected in the uptrend in the Bombay Stock Exchange benchmark index, Sensex, which jumped over 14 per cent and on the foreign investor ownership, which rose to 17.8 per cent from 16.6 per cent over the April-June quarter.
Bothra however added: "Indian policymakers need to understand that capital inflows are going to be very strong and they should judiciously manage capital inflows. The kind of liquidity flow that we are witnessing that is going to have an impact on our currency value."
The foreign investor ownership showed the highest quarterly rise in nearly three years after December 2007.
"The overall value of the FII portfolio also leaped 27 per cent to $267 billion by September this year, as against $210 billion in June, and has now crossed its earlier peak of $264 billion in December 2007," the report added.
On the back of high foreign capital inflows, redemption pressures continued for domestic mutual funds and their overall market share in the BSE500 companies declined to 3.76 per cent. The insurance share remained flat for the third consecutive quarter.
A sectorwise analysis shows that most of the foreign capital found its way into the financials sector, while telecom and consumer staples saw interest from domestic institutions.
Meanwhile, energy and IT stood out as an under-owned sector across all institutional investor groups.
