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FII enters Indian stock market

The 1,000th foreign institutional investor (FII) has entered the Indian stock market., reports Saumya Roy.

india Updated: Dec 28, 2006 20:00 IST
Saumya Roy

The 1,000th foreign institutional investor (FII) has entered the Indian stock market. It took 13 years to reach the magic number ever sincethe government opened the doors for the overseas portfolio investors in 1993 but this signifies the increasing appetite of the global investment community for Indian stocks.

According to data available with the capital market watchdog Securities and Exchange Board of India (SEBI), the FIIs have made net investment in equities to the tune of $49.32 million, or Rs 213031.7 crore since 1993. If one takes into account, their investment in debt too, the net FIIinvestment in India has surpassed $50 billion. They have bought shares worth Rs 13,27,251.4 crore and sold worth Rs 11,14,219.7 crore.

This year, the net FII investment in equities has been $8.22 billion, lower than what they had invested in 2005 and 2004.

SEBIhas not disclosed the identity of the 1,000th investor. It could be either Anima SGRPA of Italy or Acumen Capital Management of the US, a domestic broker pointed out. The capital market watchdogsaid on December 27 that its website could not be updated in December and 1030 FIIs have now been registered. Till November end, there were 993 FIIs registered.

"While this is a landmark, it is a continuation of what has been happening in the market, for the last few years," says Bandi Ram Prasad, former chief economist at the Bombay Stock Exchange who now works as a senior consultant with Dunn & Bradstreet, a business and credit information firm. "The steady stream of inflow will be a feature as long as the economy is robust," he added.

The third consecutive year of 8 per cent growth in GDP and strong corporate performance are behind the increasing interest of FIIs in Indian stocks. In fact, the Indian market now is the second largest Asian marketafter Korea in terms ofmarket capitalisation which has crossed the country's close to $775 billion GDP.

Early investors talk of how investment was restricted to a few large cap companies by a few early investors, in the '90s. Then India's booming technology sector drew global interest. The FIIs started chasing India's growth story in real earnestness from 2003 when the Indian corporate sector registered a net profit growth of over 50 per cent after debt restructuring by many manufacturing companies."I would say the turning point was when CALPERS (California Public Employees Retirement System) came and after the 2005 elections," said Andrew Holland, head of Strategic Risk Group for Merrill Lynch.

While India still does not have an investment grade rating, safer investors such as pension funds are now entering the markets. "India haslow weightage and is not investment grade yet. So, while these flows are robust, there is still room for growth," says Harendra Kumar, head of research for ICICI Direct, a firm which offers online trading platform.

Investments are also spread out across sectors and companies. Even though United States and Europe have been dominating as originating countries of FIIs, an increasing number of investors from Japan and the Middle East have started setting shops in India.

Eventhough the FII investment aggregated at $50 billion, the market value of the investment is much higher than $ 100 billion. So, the foreign players have not only receivedhuge dividend fromIndian corporations but also the value of their investment in India has grown substantially. They now hold more than 40 per cent stake in 12 firms and between 25 per cent and 40 per cent in 45 firms. In close to 250 Indian corporations, their holdings vary between 10 and 25 per cent.

First Published: Dec 28, 2006 20:00 IST