With foreign investment in Indian stock markets crossing $11 billion so far this year, market experts expect foreign institutional investor (FII) inflows to continue on a sustained basis in the future amid hopes of government's initiatives on policy reforms.
FIIs have infused a net amount of $1.02 billion (about Rs 5,692 crore) in August so far, taking the total for this year to $11.4 billion (Rs 57,958 crore) in Indian equities, according to the Securities and Exchange Board of India (Sebi).
According to market analysts, despite slow economic growth, high interest rates and poor monsoon, foreign investors are showcasing confidence in the Indian stock markets amid expectations of the government's fresh initiatives on policy reforms.
“I think FII inflows will continue in the domestic equity market, given the fact last year was bad for stocks. Also, weakness in the rupee is favouring foreign investment. But, the biggest trigger is FIIs are pinning hopes on the government’s fresh initiatives on reforms. However, if there are no policy reforms, we might not see the FII flows being sustained at the current levels,” Rajesh Jain, EVP retail research, Religare Securities, said.
Echoing similar views, Geojit BNP Paribas Research Head Alex Matthews said, “FII inflow is likely to continue, as hopes of policy reform announcements are still alive. But, if there are no reform announcements, there might be slowdown in inflow or could be a pause as well.”
Marketmen also said the reason behind the renewed confidence by the FIIs in Indian markets is the government indicating a soft stance on the controversial General Anti-Avoidance Rules (GAAR) and retrospective taxation issues.
During August 1-17, FIIs were gross buyers of shares worth Rs 26,363 crore, while they sold equities amounting to Rs 20,670 crore, translating into a net investment of Rs 5,692 crore ($1.02 billion), according to Sebi data. In addition, FIIs have infused Rs 708 crore in the debt market this month, taking the year-to-date investment to Rs 24,961 crore.
The BSE benchmark index, Sensex, has gained over 14 per cent so far in 2012.
FIIs had mostly stayed away from Indian equities in 2011. They flocked toward the debt market in 2011 with a net investment of Rs 20,293 crore, while pulling out Rs 2,812 crore from equities, amid severe volatility in the capital market last year.
