FII Inflow : Update

FII flows into equity hit $20.5 billion

Investments by foreign institutional investors in the domestic equity market have crossed the $20-billion mark this calendar year, according to figures released by SEBI on Wednesday. This is the highest ever FII inflow into the country.

According to SEBI, net FII inflows were $20.5 billion, equivalent to Rs.93,275 Crores.

The previous record was $17.7 billion in 2007, just before the US sub-prime-led financial crisis hit economies across the world.

The last two months have seen an inflow of close to $10 billion, during which the Sensex surged by more than 2,500 points. (Note: Is this MAD RUSH Good for the health of stock market? )

FIIs have also been pumping funds into the debt market with net investment crossing $10 billion as on date.

Impact

The impact of the sustained capital inflow has also been felt in the domestic currency market with rupee appreciating by more than 5 per cent against the dollar in less than a month. As the capital flow boost asset prices, regulators are worried about its overall impact on the economy.

Dr Subir Gokarn, Deputy Governor of the RBI, had said on Tuesday that the central bank is keeping a watch on capital flows and will respond if needed.

While a section of analysts has been arguing for controls on capital inflows, the Finance Minister, Mr Pranab Mukherjee, has said that it is not the right time to curb FII inflows.

The current rally in the equity market has been driven solely by FII inflows. Both retail and domestic investors have been net sellers.

“It is a purely liquidity driven rally, the fundamentals here have not changed. Globally too, the stock markets have been doing well in the past two to three months and a lot of the money is being put in to the emerging markets.