Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
FIIs: Where do you go? - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Oct 5, 2004

    FIIs: Where do you go?

    As is well known, the rally seen last year (and part of this year) between the period of April 2003 and Jan 2004 was mainly led by robust FII (foreign institutional investors) inflows into the country. Relative attractiveness and better growth prospects of emerging markets like India, slowdown in the US and lower returns on US assets led to large inflows of FII money into the country. The renewed confidence by FIIs led to Sensex reaching an all time high of 6,250.

    However, the 'party', as usual was short lived and the FIIs pulled out, seeing the first signs of trouble (in this case, the doubts over the continuation of the reforms process by the new government). However, if one were to look at the behaviour of FIIs post the formation of the new government, FII inflows have actually started to rise once more, indicating renewed confidence in the prospects of the Indian economy. In this backdrop, we asked our viewers whether a hike in the US interest rates would have an adverse impact on FII inflows into the country.

    The pie chart, indicates a good majority (54%) of our audience felt that they were confident that FII inflows into the country would be strong. Another 27% of our audience was neutral about the issue indicating that they felt FII inflows would be lacklustre or at levels lower than seen last year. The rest (19%) felt that FII inflows would get adversely affected (possible outflows) due to rising US interest rates.

    Focusing our attention first on the segment that feels FII inflows would get adversely affected, we believe that, FII inflows generally chase higher returns as well as relatively risk free assets. In this context, while the Fed has raised interest rates in the US, the returns on US assets are still not attractive enough for a large scale pull out of FII funds from emerging markets, where the returns are expected to be better. The Fed has been measured in its approach to raise interest rates, indicating that the US economic growth has not shown signs of sustaining or is inconsistent at best.

    Coming to the majority opinion that FII inflows would be strong, we believe that investors need to view this aspect with some amount of caution. Investors need to realise that FII inflows are relative in nature. That is, FIIs tend to allocate funds among emerging economies (India included) based on the risk return profile of the country. While India may one of the fastest growing economies among emerging economies, the impediments of achieving a 6.0%-6.5% growth (already revised downward) rate are many. Poor rainfall and a burgeoning deficit, together with rising crude oil prices and expected rise in interest rates may have an adverse impact on the growth of the Indian economy.

    Any signs of fatigue (as far as growth in the Indian economy is concerned) would be viewed negatively and there could be a pull out of funds and reallocation to better opportunities in other emerging economies (mainly the Southeast Asian economies). Investors need to remember that FII flows are volatile in nature and basing ones investment decision based on FII flows may not be a wise idea. As far as the retail investor is concerned, it is virtually impossible to gauge whether, FII inflows are for the long-term or vice versa.

    At the same time, retail investors do not need to get overly worried about FII inflows (or outflows) into the country, provided they have a long-term investment horizon. A long-term horizon tends to negate the adverse effects of volatile FII fund flows. Investors need to realise that a fundamentally strong stock will attract investors (FII or other wise) over the long-term, once the true value of the company is understood. The idea is to conduct one's own research (or go in for paid research) and hold onto fundamentally strong stocks. Let the fundamentals dictate investment decisions, not FII fund flows.



    Equitymaster requests your view! Post a comment on "FIIs: Where do you go?". Click here!


    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Were You Lured By Mr Market's Bait? (The 5 Minute Wrapup)

    Aug 23, 2017

    Mr Market lured investors into believing they'd bitten into a crash. Did you take the bait?

    Deep State First (Vivek Kaul's Diary)

    Aug 23, 2017

    Nowhere was the darkness deeper than in the nation's capital. There, no light shone. No flicker of awareness...observation...learning...or reflection appeared.

    Why Hasn't Warren Buffett Rung the Bell Yet? (The 5 Minute Wrapup)

    Aug 22, 2017

    It's surprising Warren Buffett hasn't warned investors about the expensive stock market? Let us know why.

    Think Twice Before You Keep Money In A Savings Bank Account (Outside View)

    Aug 22, 2017

    Post demonetisation, a cut in bank savings deposits rates was in the offing.

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working(Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    It's the Best Time to Buy IT Stocks(Daily Profit Hunter)

    Aug 16, 2017

    The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Think Twice Before You Keep Money In A Savings Bank Account(Outside View)

    Aug 22, 2017

    Post demonetisation, a cut in bank savings deposits rates was in the offing.

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 24, 2017 09:19 AM