The Sensex has fallen 31.91 per cent and foreign institutional investors have pulled out over $8.35 billion from Indian markets since September 2008. However,these negative factors have not prevented more foreign investors from coming to India. The number of new FIIs and their sub-accounts have gone up significantly,indicating that foreign inflows will pick up once the sentiment takes a turn for the better.
As per records available with Sebi,as many as 108 new FIIs have registered with the market regulator,taking their total number to 1,625 by March 13 this year from 1,517 in September 2008. The number of FII sub-accounts has also shot up from 4,620 to 4,991. Sub-accounts include foreign corporates,foreign individuals and institutions,funds or portfolios established or incorporated outside India on whose behalf investments are proposed to be made in India by an FII.
The new funds that have entered India include US-based funds like Young Mens Christian Association,Wanburg Pincus International,California Endowment and Managers Funds,Taiwan funds like Shin Kong Investment Trust and Yuanta Investment,Western Asset Management of Singapore,Master Trust Bank of Japan,Samara Capital Management of Mauritius,Shroeder International Selection Fund of Luxembourg and Victorian Assets Management Corporation of Australia.
According to investment banking circles,these new FIIs would start investing once the markets stabilise and bottom out. Foreign investors are also waiting for the rupee to stabilise,as a strong dollar will impact their returns while converting profits into dollars.
Its possible that some of the FIIs which had registered earlier have become inactive. The entry of new FIIs indicate the continuing interest of foreign investors in the India story, said an investment banker.
Sebis move to lift the ban on issuing participatory notes (PNs) and other caps on these instruments in an effort to attract foreign capital and shore up a rapidly falling stock market in October 2008,has given them more leeway to operate in India. This was actually a reversal of a year-old decision under which the regulator had placed a 40% cap on FIIs issuing PNs through sub-accounts. Sebi had earlier completely banned any such instruments that were based on Indian stocks or index derivatives.
Sebi had also done away with the 70:30 ratio of FII investment in equity and debt respectively. This is expected to give overseas investors more flexibility in taking investment decisions depending on the market situation. This move,along with the lifting of curbs on PNs,is expected to result in more inflows in the long term.
FIIs were big sellers in September and October 2008.