The quantum of losses suffered by FIIs was large and the depreciation in their investment value was also much larger than that for the domestic investors, owing to a plunge in the rupee valuation against the US dollar and other foreign currencies
New Delhi: Pitted against the double-whammy of a falling rupee and plunging share prices, foreign investors are estimated to have taken a hit of over Rs2 lakh crore in 2011 on their investments in Indian stock markets, reports PTI.
Once a darling of overseas investors for its impressive returns, the Indian equity market turned into a money-guzzler for institutions from abroad in 2011, and the outlook does not seem bright for the New Year as well.
It is not the amount of the net outflow by FIIs (foreign institutional investors) alone, which makes 2011 a bad year for Indian stock markets.
The quantum of losses suffered by FIIs was also large and the depreciation in their investment value was also much larger than that for the domestic investors, owing to a plunge in the rupee valuation against the US dollar and other foreign currencies.
According to market regulator Securities and Exchange Board of India (SEBI), FIIs purchased stocks worth more than Rs6 lakh crore during 2011, but sold shares worth a higher amount—resulting into a net outflow of over Rs2,700 crore for the year.
In comparison, Indian equities had witnessed a net FII inflow of over Rs1.3 lakh crore in the previous year, 2010.
Also, FIIs took a hit of 36% on their investments during 2011, as measured by the movement in the BSE's Dollex index (which tracks the barometer index Sensex in the US dollar terms for foreign investors).
Taking into account a gross purchase of shares worth Rs6.11 lakh crore by FIIs in 2011, the total hit for them is estimated at over Rs2 lakh crore. They accounted for about 10% of total losses of Rs19.45 lakh crore for the entire stock market.
The capital poured in by the FIIs has often been called ‘hot money’ because of its unpredictability, but these overseas entities have still been among the most important drivers of Indian stock markets.
During 2011, the FIIs were seen shifting their loyalty to the debt market and infused Rs42,067 crore. This helped India get a net FII inflow of Rs39,353 crore for the year, while taking into account both stocks and debt securities.
Fears of a global economic slowdown and domestic troubles with inflation, interest rates, lack of reforms and the falling rupee all collaborated to make the foreign investors cautious in 2011, experts said.
Destimoney Securities’ managing director and CEO Sudip Bandyopadhyay said, “Eurozone worries have pushed the Indian market into risk aversion mode and other emerging countries are performing better than India, so FIIs are staying from our market.”
Ashika Stock Broking research head-equities Paras Bothra said, “This is a natural shift from the FIIs or any other class of investor. With interest rate remaining astronomically high, portfolio allocation to debt market gets raised up in the overall composition of the asset allocation structure.”
Experts also said that outflow was seen in most of the sectors, but interest rate sensitive segments like auto, banking and realty were among the worst hit.
“Almost all the sectors saw pulled out barring FMCG (fast moving consumer goods) and some of the blue-chip stocks. In addition, the rate sensitive stocks like banking, realty and auto were severely hit,” CNI Research head Kishor Ostwal said.
Speaking about the New Year, Geojit Financial Services’ research head Alex Mathew said: “I am not very optimistic for the next year... FIIs will continue to pull out capital at least in the first half of 2012... Besides, any investment will depend on government and RBI policies.”
Angel Broking’s MD Lalit Thakkar said that the FII sell-off could come to an end only after a solution was reached on the Eurozone front and there was some positive news on the domestic economic policy front.
A saving grace during 2011 has been a continued rise in the number of FIIs present in the country. At the end of 2011, there were a total of 1,767 FIIs and 6,278 sub-accounts in the country. The number of FIIs increased by about 50 and that of their sub-accounts by more than 750 during 2011.
The net outflow of Rs2,715 crore ($358 million) by FIIs from the stocks was the second highest withdrawal since 1997. The FIIs had pulled out a record Rs52,987 crore from the equities in 2008, when the US financial crisis had sent tremors around the world affecting Indian market too.
This has taken the overall gross purchases by FIIs so far in the country to close to Rs56 lakh crore. After taking into account gross sales worth Rs50 lakh crore by FIIs so far, they have made a net investment of over Rs5.65 lakh crore ($128 billion) since markets were opened up for them in 1992.
This includes about Rs4.44 lakh crore ($102 billion) in stocks and the rest Rs1.2 lakh crore ($26 billion) in debt securities.
“The central government has decided to allow QFIs to directly invest in the Indian equity market in order to widen the class of investors, attract more foreign funds and reduce market volatility and deepen the Indian capital market,” an official statement said on Sunday
New Delhi: Starting off the New Year on a liberalisation note, the government on Sunday announced its decision to allow Qualified Foreign Investors (QFIs) to directly invest in the Indian equity market, reports PTI.
The move comes against the backdrop of significant foreign capital outflows from the domestic equity market in recent times, which has resulted in rupee volatility.
“In a major policy decision, the central government has decided to allow QFIs to directly invest in the Indian equity market in order to widen the class of investors, attract more foreign funds and reduce market volatility and deepen the Indian capital market,” an official statement said on Sunday.
A QFI is an individual, group or association resident in a foreign country that is compliant with Financial Action Task Force (FATF) standards. QFIs do not include foreign institutional investors (FIIs)/sub accounts.
In August last year, the government allowed foreign investors to directly invest up to $13 billion in equity and debt schemes of mutual funds.
With regard to foreign portfolio investments, at present, only FIIs/sub-accounts and NRIs are allowed to directly invest in the Indian equity market.
Amid severe volatility in the capital market last year, FIIs outflows amounted to more than Rs2,700 crore. The situation had an impact on the rupee, which fell to an all-time low of to Rs54.30 on 15th December and fluctuation in the domestic currency has put pressure on policymakers.
Market regulator Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) are expected to issue relevant circulars to operationalise the scheme allowing QFIs to directly invest in Indian equities by 15th January.
The RBI would grant general permission to QFIs for investment under the Portfolio Investment Scheme (PIS) route, similar to FIIs.
“The individual and aggregate investment limit for QFIs shall be 5% and 10%, respectively, of the paid-up capital of an Indian company,” the statement said.
These limits shall be over-and-above the FII and NRI investment ceilings prescribed under the PIS route for foreign investment in India, it added.
“Foreign capital inflows to India have significantly grown in importance over the years. These flows have been influenced by strong domestic fundamentals and buoyant yields reflecting robust corporate sector performance,” the statement said.
As a result, a large number of QFIs, especially a large set of diversified individual foreign nationals who are desirous of investing, do not have direct access to the Indian equity market, the statement said.
“In the absence of availability of a direct route, many QFIs find difficulties in investing in the Indian equity market,” it noted.
Furthermore, QFIs would be allowed to invest through SEBI-registered Qualified Depository Participants (DP). A QFI shall open only one demat account and a trading account with any of the qualified DPs and will carry out purchases and sales of equities through that DP only.
The DP should ensure that QFIs are compliant with all KYC (Know Your Customer) and regulatory norms. It would also be responsible for deduction of applicable tax at source out of the redemption proceeds before making redemption payments to QFIs.
“QFIs shall remit money through normal banking channels in any permitted currency (freely convertible) directly to the single rupee pool bank account of the DP maintained with a designated AD category-I bank,” the statement said.