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FII inflows touch all time high

Feb 23, 2000

Foreign Institutional Investments (FII) touched a high of Rs 4.4 bn on Tuesday. The fresh surge in foreign inflows comes on top of a stupendous rise in cumulative investments in February. During the current month FIIs have invested (net) Rs 24 bn - an average of Rs 1.5 bn per trading day. This has definitely had a positive impact on the markets and this is evident from the sharp rise in the BSE Sensex.

We have been tracking this issue closely over the past few days and have pointed out that even though the net investments have surged, there has been a marked increase in the gross purchases and sales of FIIs - making a continuous churning of portfolios. A number of reasons including new reform measures and a pick up in economic activity have been sighted so far for the FII interest in the markets.

Two other factors need to be considered. First, collections of mutual funds (especially the technology funds) have surged over the last couple of months. This has resulted in a situation where too much money is chasing too few 'good' stocks.

The other reason could possibly pertain to the Sebi's decision to reduce the number of beneficiaries to 2 (from the initially stipulated 20) in case of funds registered as FIIs. This has attracted high networth individuals, who do not wish to participate in larger funds and were looking at investing in India. Whether the current surge in inflows will sustain is difficult to tell. However, one thing is for sure. The Indian markets are finally attracting the interest of large international investors that were hitherto averse to investing in India.

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