Weekly FII inflows highest in five months

Weekly FII inflows highest in five months

Mumbai: Foreign institutional investors, or FIIs, purchased Indian stocks worth $1.35 billion (Rs6,213.8 crore) in the last one week, the highest in five months and the best in any week after a Union budget since 2001, as the fiscal consolidation plans outlined in the annual government financial statement boosted sentiments and fears of a Greek debt default receded.

This category of investors is one of the largest in the Indian markets and strongly influences index movements.

“Investments into India will continue," said Christoph Avenarius, director, alternative investments, at Swiss bank Credit Suisse Group AG which, along with its units, owned Indian shares worth at least Rs728 crore at the end of December. “There are attractive investment opportunities in India because of the strong growth potential."

India is the second fastest growing $1 trillion-plus economy in the world and the government is focused on pushing economic growth to double-digit levels.

On Monday, provisional data from the Bombay Stock Exchange said FIIs invested a further $248.62 million, or Rs1,132.01 crore. This pushed the exchange’s benchmark index Sensex 108.11 points, or 0.64%, up to 1,7102.6.

India’s most widely followed index had gained 4.1% since the Budget was presented. The 50-stock broader Nifty rose 4.1% in the same period.

“The worst fears have been put aside; there is a road map for fiscal consolidation," said Deepak N. Lalwani, director of India Investments at London-based stock brokers Astaire and Partners Ltd. “The government is still talking about growth and trying to say that rates should be benign as long as possible."

According to a recent note from Emerging Portfolio Fund Research, Inc. or EPFR, “flows into India Equity Funds hit a six-week high (for the week till 4 March), as service sector data supported predictions of strong growth."

This happens at a time when “flows into all emerging market equity funds only amounted to $240 million, the third straight week of inflows, albeit subdued", the funds tracker said.

In the Union Budget presented on 26 February, finance minister Pranab Mukherjee said the fiscal deficit would be reduced to 4.1% of gross domestic product (GDP) in the next three years. The projected deficit for the next fiscal is 5.5%. A higher fiscal deficit increases government borrowing, crowds out private investment and spooks equity investors.

According to data with the markets regulator, the Securities and Exchange Board of India, last week’s inflow is the highest in a week after the budget since 2001. So far, in 2010, FIIs have invested $1.35 billion, on top of some $17.64 billion in 2009.

“Investors are closing their underweight positions in India now," said a Singapore-based hedge fund manager, who didn’t want to be identified. “The Budget is not dramatically negative and there is less fear around Greece."

FIIs pulled out money in early February, hammering the Sensex to a three-month low, fearing that some European nations may default on their debt payments and that the Budget in India may fully roll back the fiscal stimulus. At that time, the main concern was that Greece would default on its debt payments and this contagion would spread to other countries such as Ireland, Italy and Spain, which had similarly precarious fiscal positions.

But the situation reversed in March on a string of positive news flow around the world.

According to a 5 March report from Franklin Templeton Asset Management (India) Pvt. Ltd, Greece announced fresh austerity measures that could lead to a further reduction in its deficit and the 10-year bond auction was well subscribed. This, along with expectations that the European Union could provide support to Greece, boosted investor sentiment.

What has also helped is positive news from the US. Last week, US employment data showed that employers cut only 36,000 jobs in February, much better than the consensus estimates of 50,000. The US Federal Reserve’s Beige Book report also said consumer spending there increased and the economy continued to grow at a “modest" pace.