FIIs withdraw 2 bn in 3 weeks

The uncertain global environment has taken its toll on fund flows across the world.

The financial turmoil in Eurozone and the US has led to foreign institutional investors FIIs withdrawing 2 billion from India in just three weeks in August.

And the pullout is not just in India. The uncertain global environment has taken its toll on fund flows across the world. EPFR data shows that equity funds saw outflows of 26.1 billion,their worst showing since the second quarter of 2008. On top of this,10.4 billion flowed out of bond funds.

As per data available with Indian stock exchanges,there has been a net FII outflow of Rs 8,956 crore in August so far,taking total outflows to Rs 13,955 crore in 2011. FII selling in August has come after inflows in June and July.

In fact,FIIs increased stakes marginally in 16 Sensex firms including Larsen amp; Toubro,Hindustan Unilever,Infosys and ITC,during the June quarter this fiscal. The data available on the shareholding pattern of Sensex companies revealed that FIIs consolidated holding in over half of the blue chip firms and reduced exposure in 14 of them such as Reliance Industries,ICICI Bank,HDFC,State Bank of India during the April-June quarter. However,FII holding in many companies would have come down since then due to the sell-off this month.

Mirroring the volatility in the global economy,FIIs were not consistent while investing in the Indian market. In April they invested Rs 4.39 crore in the equity market,while taking out Rs 3,705 crore in May. In June they infused Rs 2,662 crore,according to the BSE/NSE data.

FIIs have been sellers throughout the week. The just-concluded earnings season has highlighted weakness in manufacturing and infrastructure activity, said Sanjeev Zarbade,vice-president,Kotak Securities.

The Sensex slumped 4.14 per cent to 16,141.67 in the week ended August 19,its lowest closing level since May 25,2010. The Samp;P CNX Nifty dropped 4.48 per cent to 4,845.65.

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Going into the next week,the focus would be on the global markets. The Federal Reserve meets at Jackson Hole and the outcome may give some clarity on how does it plan to stimulate the US economy. Closer home,there is uncertainty on the passage of various reforms,despite the fact that,the government has lined up a few of them for the monsoon session.

Consequently,market expectations are low regarding passage of key reforms in the immediate term. The markets are grappling with several issues. However,investors must consider that even as the momentum is negative and volatility is high,valuations are turning reasonable for long-term investing, Zarbade said.