Raghuram Rajan?s steps lift sentiments, FIIs buy $19-bn equity in ?13

With a little over two weeks left for the calendar year to end, foreign institutional investors (FIIs) have already posted the third-highest ever net inflows. Overseas investors had bought $18.65 billion worth of equities until Friday.

According to market experts, the steps taken by the Reserve Bank of India (RBI) governor Raghuram Rajan have encouraged FIIs to raise their holdings in India. ?Measures such as FCNR (B) deposits, which have attracted $34 billion worth of foreign inflows, have lent credibility to the monetary policy. The current account deficit (CAD) has improved and the currency has strengthened,? said Rajesh Cheruvu, chief investment officer, RBS. ?Apart from this, market participants expect the capex cycle to revive after elections,? he added. CAD at $5.2 billion for the quarter ended September is the lowest since 2010.

The buying spree by FIIs catapulted markets to their all-time highs in the current calendar year. The benchmark indices Sensex and Nifty touched lifetime intra-day highs of 21,483.74 and 6,415.25, respectively on December 9 on back of state Assembly results.

Meanwhile, in previous years, FIIs had invested most in 2010 when they pumped in $29.32 billion taking markets to then lifetime highs. The second highest net inflows of $24.54 billion were recorded in 2012. ?Last year?s inflows were on account of long-term refinancing operations (LTRO) launched in Europe to avoid a credit crunch,? added Cheruvu.

Even the current market rally according to experts has been partly driven by US Fed?s $85 billion monthly bond-buying programme. ?We expect FII inflows to continue even if Federal Open Markets Committee (FOMC) decides to start QE tapering this Wednesday,? said head of a leading investment bank. In year-to-date, Sensex and Nifty has gained 6.35% and 4.23%, respectively.

Meanwhile, domestic institutional investors (DIIs) have remained net sellers in the current calendar year. DIIs have off-loaded $12.62 billion worth of equities in year-to-date. On Monday, FIIs added another $25 million to their net investments.