Zero interest rates of US and low interest rates of other countries made cheap money to flow like water coming out of a fountain. All these cheap money founded BRIC economies assets at cheap valuations giving them enough scope to generate healthy ROI.

Indian stock market was one of the most lucrative market to generate good ROI. This particular growth prospect made the FII’s to pick up investments avenues in Indian market directly via FDI or through stock market.

From early 2008, the Nifty nosedived from about 6,287 to just above 2,500 by late October and remained below 3,000 until late March this year. This can be attributed mainly to the virtual stagnation of global liquidity flows. Once the flow of funds started rest is now history. The speed of the journey of Indian market from the lows of 2008 and 2009 was very much eye catching. The speed made many economists around the world surprised. Cheap money started chasing the cheap assets around the world. Funds behind Indian stock market were:

  • Many Americans – have are poured money intoØ mutual funds that buy foreign stocks, especially in emerging markets such as China and India.
  • Investors are rushing overseas tooØ aggressively.
  • This year, individual U.S. investors, stillØ jittery about the stock market overall; have invested almost $21 billion into risky emerging-market funds.
  • Overseas fund inflows into the Indian stockØ markets have crossed the Rs 60,000-crore (about $12 billion) mark so far this year.
  • There is a sudden surge in foreignØ institutional investor (FII) inflows through the participatory notes (P-notes) in the last two months.
  • The finance ministry have also revealed thatØ the outstanding P-notes position in October 2009 is Rs 1,24,575 crore.
  • According to Sebi, outstanding investment byØ August-end stood at Rs 110,355 crore. This means Rs 14,220 crore of FII inflows, or roughly a third of the total FII inflows of Rs 44,652 crore during September and October, came through the P-notes route.
  • FIIs’ net investments in Indian stocks thisØ year have crossed US$15bn, as per SEBI’s web site.

The below chart shows the historical data of FII’s inflow in Indian stock market till 2008.

fii-investment-in-last-10-yrs

Between March 2001 and March 2007, the market value of shares owned by FIIs went up from $9.7 billion to $124 billion. March 2007 have been taken to exclude the pull out of funds in 2008.This will clear that what was their investments in normal phase of the World Economy.

The below image shows the FII’s investments in India in 2009 only.

fiiinvesinyr09

We find from the above chart that from March 2009 the cheap money started flowing into the roads of Indian stock market.

The US investment vehicles are so aggressive that recently Fidelity Investments, which just increased its recommended international exposure for a typical investor to 30% of one’s overall portfolio from 20%, launched a program last month for individuals to directly buy securities online in foreign markets, something once reserved for financial professionals.

But the cheap money flowed from all directions into the Indian stock market. Even when I am writing this article we find that still huge amount of funds are still in the sidelines getting ready to pour into the Indian stock markets. Global emerging market equity funds have got an investment around $56.8 billion this year, putting them on track to eclipse a record $50 billion in 2007. A year ago funds had seen accumulated outflows of $40 billion. So India remains in the top list of developed economies for investments. Even if any recession comes in the future India will still remain the lucrative investments destination.

Regard
Indranil Sen Gupta
Research Analyst

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