Mumbai: Foreign institutional investors, or FIIs, the largest group of investors in India’s secondary markets, have taken out some $6.44 billion (Rs27,692 crore) in the first six months of 2008, the biggest ever sell-off since India first opened its doors to them in 1993.
A Mint analysis of FII investment in Indian markets, based on Bloomberg data, shows that in the first six months, these investors have sold more than 11% of what they had invested in Indian stocks since the beginning of this century.
The Bloomberg data captures FII investment or sale only in the cash market and does not reflect their activities in the futures and options market.
Through 2007, FIIs had bought $56 billion worth of Indian stocks, net of selling.
According to analysts and institutional sales executives of brokerages who service FIIs, many such large funds are selling Indian stocks, on price concerns. UK-based multi-product asset manager Gartmore Investment Ltd is one such fund manager with negative bias on Indian stock valuations.
The firm, which has a $1 billion emerging markets fund portfolio, recently said its hedge funds are net short on India, while their long-only funds are lowering the weightage on India in their portfolio.
However, not all global investors fall in the same league, when it comes to their India strategy.
Robert Higginbotham, president of Fidelity International, one of the world’s largest asset managers, with more than $1.5 trillion under its belt, believes that “Indian stocks are definitely cheaper and do not have significant downside from here”.
“We are not amid a structural bear market,” he said. The rampant sell-off is associated more with behavioural finance than sensible investment philosophy, he added.
Fidelity’s emerging market fund, benchmarked against the MSCI emerging market index, as well as its India-focused fund, which manages about$4 billion assets, has witnessed net inflows during the past six months.
Globally, mutual funds have witnessed 70% slump in their net inflows so far this year.
Though volatility in markets is expected to continue through 2008 largely because of the headwinds—soaring oil price and inflation—in another 12-15 months, there could be a trend change in equity markets, Higginbotham said.
Dixit Joshi, managing director and head of equity-linked products at Barclays Capital, an affiliate of Barclays Bank Plc., also said that he “has positive outlook on Indian equity markets”. Both Fidelity and Barclays count among the biggest FIIs in India.
“India’s underlying economic growth story is still strong and once there is global equity markets, Indian stocks could see one of the sharpest bounces,” said a Singapore-based hedge fund manager, who manages $500 million in Indian stocks but didn’t want to be identified.
Last year, FIIs had pumped in $17.3 billion, lifting the country’s bellwether stock index Sensex from 13,461.6 to 20,286.99, some 47%. The Sensex has lost at least 33% so far this year.
Excluding 2008, since 1993, only once have foreign investors turned net sellers: in 1998 but, the amounts were very small, about $280 million. Otherwise, they have been net buyers of Indian stocks every year with their annual net buying varying between as low as $540 million in 1993 and $17.36 billion last year.
FIIs have been progressively raising their investments in Indian market since 2003, the year that saw the beginning of the bull run in the Sensex.
The benchmark index rose from 2,924.03 in April 2003 to 21,206.77 this January. After investing $6.63 billion in 2003, FIIs pumped in $8.47 billion in 2004, $10.78 billion in 2005 and $7.94 billion in 2006 before investing a record $17.36 billion last year.
The tide turned in January this year when FIIs sold more than $4 billion worth of Indian stocks, the highest-ever selling by this class of investors in any single month, after Sensex lost close to 17% from its peak reached in the second week of January.
In the subsequent three months, FIIs bought Indian stocks but, again turned net sellers in May and June, taking out more than $6 billion from Indian markets in six months, through 27 June.
According to provisional data of stock exchanges, on Monday FIIs were net sellers to the tune of some $49 million.
Collectively FIIs hold stocks worth more than $80 billion across 30 firms that constitute Sensex, some 18% of their total market value.