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Will the FII Selloff Continue?
Thu, 3 Dec Pre-Open

Foreign flows have reduced from the peak highs of US$ 24.3 billion in FY12 to US$ 16.1 billion in FY14. The year to date data shows a bleaker picture. Having said that, it should be brought to mind that FIIs need to react to redemption pressure from their respective countries and many of those reasons are completely disconnected from fundamentals.

But while the global fund managers are seemingly pessimistic about emerging market in general and India in specific, there are those who continue to remain optimistic. The Executive Chairman of Franklin Templeton Investments, Mark Mobius, recently shared his views regarding India's economy. And his bullishness is such that the country could well overtake China's share in the Templeton Emerging Market's group investments over the next five years. Currently, China accounts for 8% of the group's equity investment, followed by India with a 3% share.

He also expressed his concerns about the outflow of Foreign Institutional Investment (FII), in relation to concerns from US Federal Reserve's policy decision. He however believes that money would start flowing back to emerging markets once the interest rate policy uncertainties are over. He however, did add that the implementation of reforms by the current government remains key. The reforms have not picked up in the manner as anticipated from the ruling party as it has not been able to get the key reforms passed in the Upper House of the Parliament, wherein it does not have a majority.

The earnings season this time has not cheered the stock markets as well. In fact there have been downgrades in the earnings estimates by various brokerage firms. As such, a pickup in the corporate earnings, reforms and US Federal Reserve's decision on interest rates will be the key things to keep an eye on going forward as these factors will impact the future FII activity and the volatility in the stock markets.

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