FIIs are back again

The feathered friends of India’s stock markets are back.

Foreign institutional investors (FIIs) who had flown to safety last month in the wake of uncertainties surrounding Greece and its impact on the global economy have already put in Rs. 8,850 crore in June, raising chances of market stability at higher levels.

They pulled out a total of Rs 9,436 crore in May from the Indian equity markets as there were growing concerns over the debt crisis in Greece spreading like a contagion to other European economies, especially Spain.

“However, contrary to the expectations, Spain managed to raise $4.3 billion worth of bonds in June, suggesting that confidence is coming back to Euro zone area,” said Sanjay Sinha, CEO of L&T Mutual Fund.

“Also, crude prices strengthened against expectations that commodity prices may soften. These two factors seem to have contributed to the FII inflow turning positive,” he added.

With local investor support often lacking, FII money holds a lot of significance for the not-so-deep Indian capital markets and any outflow or inflow leads to tremors in the stock markets.

While the BSE’s 30-share Sensex fell by 3.6 per cent in the May with the FII exit, their re-entry into the markets had lifted the Sensex by 7 per cent in June.

Market experts said the overseas portfolio investors had pulled out of equities to park their funds in fixed-income securities and gold.

“In May, money moved out of riskier assets to risk-free assets and there was a general outflow from equities. But now ,with some stability around and India being one of the most promising destinations for economic growth, we are witnessing the money flowing back to India,” said Vikas Khemani, co-head, institutional equities, Edelweiss Capital.

Even after the global financial crisis in 2008, the FIIs pumped in a total of Rs 1,10,218 crore between April 2009 and March 2010 leading to an 80 per cent surge in the Sensex in 2009-10. That was the highest ever annual FII inflow for a financial year in the Indian equity markets.