Foreign investors take a breather; FII inflows negligible in last 6 months

FII flows have seen a bumpy ride so far this year, with a meagre investment of USD 15 million, while domestic institutional investors (DIIs) continue to invest more aggressively into the Indian equity market and have bought net assets worth USD 7.9 billion, says a report.

"The flows for this year in the first six months is negligible compared to last year during the same period. While last year FIIs invested net assets worth USD 8 billion in the first six months, this year the figure is a meagre USD 15 million (or USD 0.01 billion) until June 12, 2018. So, this year has been extremely unfavourable from FII flow perspective," said a report by Morningstar Investment Adviser.

While in January, foreign institutional investors (FIIs) bought net assets worth USD 2 billion, in February they were net sellers to the tune of USD 1.8 billion. 

Again, in March, they bought net assets worth USD 1.8 billion whereas in April and May they sold net assets worth USD 2.3 billion.

"At a time when FIIs have been on a selling spree, DIIs continue to invest into the Indian equity markets and stabilising it. This year so far, DIIs have bought net assets worth USD 7.9 billion. This is much higher than the net inflow of USD 3.3 billion they made in first six months of last year," said Himanshu Srivastava, Senior Analyst - Manager Research, Morningstar.

The difference between FII and DII investment is that, for FIIs, India is like any other investment destination. They continually evaluate India with other countries to understand the risk reward profile it offers at a given time. Hence, they will not shy away from shifting to other investment destinations if that offers better prospects, Srivastava said. 

As for DIIs, India is the only investment destination, he added.

There has been significant outflow from India focussed offshore funds and ETFs. Except for the month of January when the category received a net inflow of USD 1.2 billion, in the remaining four months until May, the segment witnessed a net outflow of almost USD 2 billion, it said.

As per the report, India focused offshore funds which are long term in nature have been witnessing huge outflows.

Over the last four months the category has witnessed net outflow of USD 966 million. On the other hand, during the same period India focused ETFs witnessed a net outflow of USD 940 million.

"The moving out of long term money from the country is definitely a concerning factor but not unexpected. There could be couple of factors leading to this. Few investors who have been invested in the Indian markets over the last 3-5 years or even more might have chosen to book profit at this juncture anticipating higher volatility in the Indian markets the closer it is to general elections," he said.

Besides this there are other factors as well which led to the outflow from FIIs in the month of April and May. High crude prices, depreciating rupee, higher bond yields in the US were the primary reasons for the same, he added.

FIIs have taken a breather from selling as they have bought net assets worth USD 160 million in June so far. This change could be attributed to easing global crude oil prices and revival in corporate earnings, the report noted.

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Going ahead, we will be entering election season which could add fair bit of volatility in the markets and FIIs will also be focusing on the progress of monsoon which is essential to gauge how inflation could pan out, it said.

Now, FIIs are known as foreign portfolio investors (FPIs).