In a boost to the government’s reform initiatives, foreign institutional investors (FIIs) invested over Rs. 1 lakh crore in the markets in the first nine months of 2012, nearly six times higher that of the year-ago period.
There was a net inflow of Rs. 106,851 crore during the January-September period of 2012 against Rs. 17,665 crore a year ago, data by the Securities and Exchange Board of India showed.
“Steps taken by the Central government to revive economy, excess global liquidity and Indian shares available at cheap valuations are the major reasons for increased FII inflow,” said Motilal Oswal, chairman and managing director, Motilal Oswal Financial Services.
Faced with criticism of policy paralysis, the government recently announced steps including Cabinet approval to raise foreign direct investment (FDI) cap in the insurance sector, allowing 49% equity in pensions, 51% FDI in multi- brand retail, 49% in aviation and others, to stimulate the economy
On the global front, the European Central Bank and the US Federal Reserve, in 2012, released additional liquidity by their bond-buying programme to stimulate the economy. The extra money from the central bank purchases gave more money in the hands of global investors, encouraging them to take risks.
Of the total net inflows by FIIs, around R83,000 was invested in equities and R25,000 crore in debt in the first nine months.
Analysts, however, sounded a word of caution.
“Although the FII investment this year has been strong but it isstill low from the net inflows in 2010,” said Jagannadham Thunuguntla, research head, SMC Global Securities. “FII investments in the currentcalendar year is expected to be less than 2010.”