Debt turns favourite as FIIs backpedal equities

Thanks to almost double-digit return on fixed deposits and other debt instruments, foreign institutional investors (FIIs) are giving equities a skip, which are already reeling under the pressure of rising oil prices, high inflation and interest rates.

Thanks to almost double-digit return on fixed deposits and other debt instruments, foreign institutional investors (FIIs) are giving equities a skip, which are already reeling under the pressure of rising oil prices, high inflation and interest rates.

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However, money continues to flow into debt, data from the stock exchanges show.

In May alone, FIIs pulled out Rs 8,209 crore from equities, the highest in a month in the last one year (see table). By contrast, FII investment in debt instruments stood at Rs 3,564 crore during May and Rs 15,024 crore for the first five months of 2011.

“Banks are offering guaranteed close to 10% on 13-month paper. FII fund managers would invest in equities only if they see a 5-6% premium on investments, which does not look likely under the current environment,” said Aseem Dhru, CEO, HDFC Securities.

However, investors should continue with their long-term investment into equities, experts said. FIIs will come back when the market turns attractive and the macro-economic pressures ease, they added.