Weak earnings, Sebi action dent FII inflows

Written by Markets Bureau | Mumbai, Jun 9 | Updated: Jun 11 2008, 04:02am hrs
The global liquidity crunch, in the aftermath of the sub-prime crisis, does not seem to be the only reason why foreign institutional investors (FIIs) are shying away from Indian equities. Weak corporate earnings due to higher input cost and interest rates, and political uncertainties also have kept the FIIs at the fringes. The market regulator's move to partly restrict FIIs last year may also be a reason, dealers said.

In the backdrop of a booming capital market for many years, there were huge FII inflow into the country in the first few months of this calendar year. FIIs infused $3.59 billion from January to June in 2004. The numbers stood at the same levels for that period in 2005. Year 2007 saw a net inflow from the FIIs to the tune of $4.45 billion from January to June. The figures for 2008 (till June 6), in contrast, stood at a negative $4.6 billion.

Some experts also reckon that monies are flowing into some cheaper economies. Gopal Agarwal, CIO, equity, Mirae Asset Management, said, "There are very much chance that the money is flowing into some cheaper economies like Brazil, Russia and Japan, which have proved to be more resilient than the Indian markets. A lot of money flew into commodities also."

On Monday, as the key equity indices ended with a 3% loss, according to the provisional figures from the stock exchanges. The FIIs sold equities worth Rs 1,344.67 crore while the domestic institutional investors, which mainly consist of mutual funds, were net buyers of Rs 1,030.26 crore. Mutual funds, which are known for taking a contrary view to the FIIs on the Indian markets, have continued to infuse money at every lows in the Indian markets. "The FIIs were net sellers in the meltdown of May 2006 and after that we saw the markets reaching 21K levels and the MFs were net buyers even then. A few issues such as rising oil prices and spikes in the inflation have created problems in the short run but the MFs are still riding on the macro growth of India."