New Delhi: The ‘hot money’ poured in by foreign investors for purchase of stocks and bonds in 2010 has neared Rs 10 lakh crore, a record high for a year and nearly one-fifth of their overall investment so far.
Foreign institutional investors (FIIs), whose investments have often been called ‘hot money´ because they can be pulled out anytime, have purchased stocks and debt securities worth Rs 9,60,000 crore so far in 2010, according to the latest available data.
At the same time, FIIs sold shares and bonds worth Rs 7,80,000 crore during the year — still leaving behind a record net investment of over Rs 1.75 lakh crore for the year.
Experts said that it was a strong FII inflow that provided the much-needed warmth to the Indian capital markets in 2010 when the global economy continued to reel under pressure.
This has taken the overall gross purchases by FIIs so far in the country to close to Rs 47 lakh crore. After taking into account total sales worth Rs 42 lakh crore by FIIs so far in the country, overseas investors have made a net investment of over Rs 5 lakh crore since markets were opened up for them in 1992.
This includes about Rs 4.5 lakh crore in stocks and the rest in debt securities. During 2010 alone, FIIs made a net investment of Rs 1.30 lakh crore in equities and about Rs 46,000 crore in debt. The huge inflows came despite only about 50 new FIIs entering the country during the year, on top of the about 1,700 FIIs already present at the end of 2009.
This is the first time in history that net FII inflows for a year have crossed the Rs 1 lakh crore mark and analysts expect overseas investment to continue to rise in the next year.
In 2009, FIIs had infused Rs 83,423 crore in the stock market.
According to analysts, FIIs have been pumping funds into emerging markets like India because of their strong growth potential. Besides, rising concerns over the European countries’ debt issue are also driving foreign funds into the Indian market.
Marketmen further said that FII inflows into the country will continue to rise in the next year as well, if the liquidity conditions remain strong.
“FIIs are bullish on Indian market and foreign funds are aware that India and China together have the potential to attract around 10 per cent of total inflows in a couple of years,” CNI Research head Kishore Ostwal said.
He further said, “FII inflows were not disturbed by the 2G scam, financial bribery scandal and the Indian stock market will continue to witness huge inflows in the 2011 as well.”
“Apart from the country’s robust economic growth, weakness in overseas markets due to European crisis, Federal Reserve’s second quantitative easing plan and Indian government’s disinvestment added to the huge inflows and 2010 has broken all the records of investment by FIIs,“ SMC Capital’s Jagannathan Thunuguntla said.
Analysts believe the government’s plans to disinvest in public sector companies, including Coal India, MOIL and Shipping Corporation of India, have also given more investment opportunities to FIIs.
The month of October saw the highest amount of capital inflows as the overseas fund houses were net buyers of Indian equities worth Rs 33,18.60 crore.
Finance Minister Pranab Mukherjee, however, sounded a word of caution over volatility in FII inflows. Even the Reserve Bank had expressed concerns at the rising capital flows into the country and had said the impact on exchange rate and asset prices would have to be closely monitored as this can impact further rise in domestic inflation and impede exports.
But despite the note of caution, the government indicated that it would not intervene in the foreign exchange market even if capital inflows into the country touch $50 billion during the 2010-11 fiscal. In dollar terms, the net FII inflows during 2010 stood at about $39 billion.