New Delhi: A fall of over 1,700 points in Sensex over the last week is a pointer to the fact that FII money flow into the capital markets may come down in the last three months of this fiscal.
In fact, the Prime Minister’s Economic Advisory Council has projected that foreign institutional investments in capital markets will slow down to $5.5 billion in the last quarter of this fiscal.
Capital markets have received $6.3 billion in the third quarter of the current fiscal from FIIs, the council said quoting Sebi figures.
“We project a somewhat smaller figure for Q4, bearing in mind the experience of net selling in March during previous years,” the council said in a report on review of the economy for 2007-08.
The EAC expected capital inflow from proceeds of GDR/ADR issues to be about three billion dollars.
Adding this three billion to foreign investment in capital markets, the total portfolio investment is pegged at $14.8 billion during the second half of 2007-08, against $18.3 billion in the first half.
Already, FIIs were net seller to the tune of $348.50 million in the equity market in the first month of this year till last week. Since they were positive buyers of $445.60 million in the debt market, they were net buyers in the overall capital market.
This week alone, FIIs net selling was to the tune $992.4 million in the equity markets. They sold shares worth $1,107 million in the last two days of the week.
Sensex tumbled by over 1,713 points in the week, witnessing a slide of 854.12 points in the last two days.
Speculations were rife that Citigroup is winding up huge positions as it incurred significant losses due to the sub-prime crisis in the US.
The slowdown in the US is also likely to adversely impact the foreign capital flow into Indian stocks. “While economic implications for India from US slowdown may be relatively less severe, one cannot say the same about implications on flows,” Citigroup’s India research Head Ratnesh Kumar said.
With huge FII inflows being a key factor behind the rally in the past few years, even a short-term flight of overseas funds has caused jitters on the bourses, given their significant holding in the free-float market capitalization.
Since 2000, FII ownership in Indian market has risen over three-fold to 20% and is now nearly three times the total holdings of domestic MFs and insurance companies, according to global financial services major Citigroup.
However, with insurance companies emerging as a major investor in stocks, the total infusion by domestic institutions are set to overtake the overseas investment by a wide margin.
The FII flows have been the cornerstone of the phenomenal rise of the Indian stock markets, but domestic institutions are likely to surpass them in 2008, brokerage firm Sharekhan said in a report.
Analysts at Sharekhan anticipate a huge corpus of $15-20 billion to be invested by the insurance companies in the next two years, while the mutual funds are also likely to put in $5-8 billion.
Taking into account both MFs and insurance companies, the domestic institutions would easily surpass the FII inflows, the Sharekhan report said.