Foreign institutional investors have pulled out a record $7.53 billion Rs 44,162 crore with the dollar at Rs 60 from the Indian debt and equity markets this month,more than double the previous high of $3.53 billion in October 2008 when India suffered the after-effects of the financial crisis triggered by the collapse of Lehman Brothers in the US.
FIIs sold a net $5.68 billion (Rs 33,135 crore) in debt and a net $1.85 billion (Rs 11,027 crore) in equities. While the debt outflow is the highest in Indian capital market history,the outflow from equities is the highest since October 2008. FIIs sold a net Rs 15,347 crore in equities in October 2008 as against Rs 11,027 crore this month.
Raamdeo Agrawal,joint managing director,Motilal Oswal Financial Services,who recently met large investors in the US and Britain,said FIIs want to invest in India but India needs to prove it deserves this money.
It is tough to predict the direction of fund flow in the near-term with so many factors at play. But there is tremendous amount of capital looking for growth,which India offers. If we have an investment policy,stable currency and a reasonable current account deficit,then we will not only get FII money but also FDI, he said.
Massive outflows this month not only had a bearing on the rupee but also weakened equity markets. The rupee depreciated by a sharp 7 per cent and closed at an all-time low of 60.72 on Wednesday. It recovered in the next two sessions to close at 59.39 Friday.
The benchmark 30-scrip Bombay Stock Exchange Sensex fell over 6 per cent during the month to close at 18,552 Wednesday. It recovered 843.7 points over the last two trading sessions and closed at 19,395.8 Friday.
According to Agrawal,corruption issues and the strained relationship between the government and business is adding to Indias woes. In 2012-13,the Indian economy grew 5 per cent,its lowest in a decade.
In rupee terms,the net outflow of debt and equity combined this month is higher than the net outflow in any calendar year. The aggregate outflow of Rs 44,162 crore this month is higher than the net outflow of Rs 41,215 crore witnessed in calendar 2008. In dollar terms though,the net outflow in 2008 stood at $10.1 billion,higher than the $7.5 billion net outflow this month.
The panic sell-off by FIIs after Federal Reserve Chairman Ben Bernankes announcement on tapering of the quantitative easing,through which the Fed purchases bonds worth $85 billion every month,triggered the record outflows.
For India,2013 had begun on a strong note with aggregate FII inflows at a robust $19.8 billion (Rs 107,252 crore) during January-May. June,however,shaved off almost a third of the inflows. The aggregate inflows for the first six months of calendar 2013 now stand at $12.3 billion (Rs 63,090 crore).