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E] FOREIGN INSTITUTIONAL INVESTMENT
 
 

Tables 2.29 & 2.30 present details of investments by FIIs since 1992-93 and the details of monthly investment by FIIs in 1998-99.
 
 

The analysis of data indicates that there has been substantial divestment by the FIIs during the year 1998-99. The maximum outflow was during the months of May and June 1998 (almost US$430 millions).
 
 

Table 2.29: Yearly Trends in FII Investment
 
Month Gross Purchases Rs. Cr Gross

Sales Rs. Cr

Net Investment Rs. Cr Net Investment US $Mn at monthly ex rate Cumulative

Investment

(US $ Mn.)*

1992-93 17.4 4.0 13.4 4.2 4.2
1993-94 5,592.5 466.3 5,126.2 1,634.0 1,638.2
1994-95 7,631.0 2,834.8 4,796.3 1,528.3 3,166.5
1995-96 9,693.5 2,751.6 6,942.0 2,035.7 5,202.2
1996-97 15,553.9 6,979.4 8,574.5 2,431.9 7,634.1
1997-98 18,694.7  12,737.2  5,957.5  1,649.4  9,283.6
1998-99 16,115.1 17,699.4 -1,584.5 -386.6 8,897
Grand Total 73,298.0  43,472.7  29,825.2  8,897   

Source: SEBI

Figures may not add exactly due to rounding.
 
 

Table2.30 Monthly Trends in FII Investment
 
Month Gross Purchases Rs. Cr Gross 

Sales

Rs. Cr

Net Investment Rs. Cr Net Investment US$M at monthly ex rate Cumulative

Investment

(US $ Mn.)*

A 98 1,294 1,392.4  (98.4) (24.8) 9,258.8 
M 98 845.9  1,729.7  (883.7) (218.4) 9,040.4 
J 98 802.3  1,638.7  (836.4) (198) 8,842.4 
JL 98 1,309.8  1,226.1  83.7  19.7  8,862.1 
A 98 813.6  1,270.6  (457) (106.9) 8,755.2 
S98 1,453.4  1,312  141.3  33.2  8,788.4 
O98 1,073.7  1,672.2  (598.4) (141.4) 8,647 
N 98 1,039.1  1,239  (199.9) (47.2) 8,599.8 
D98 1,345.8  1,135.8  210  49.3  8,649.1 
J99 1,642.3  1,189.4  452.9  106.4  8,755.5 
F99 1,647.8  1,323.2  324.5  76.3  8,831.8 
M99 2,847.4  2,570.4  276.9  65.2  8,897 
1998-99 16,115.1  17,699.4  1,584.5  (386.6)

Source: SEBI

*The dollar equivalent values are not the actual dollar inflows in the country, but simply a converted figure for the Rupee based investments.
 
 

During 1998-99 SEBI registered a total of 60 FIIs taking the total registered FIIs as on March 31 1999 to 450.


Graph 2.14 Monthly investment trends since 1993
 
 

Graph 2.15 (a) Monthly Trends in Purchases and Sales by FIIs
 
 

A major factor which led to continuous outflow of funds during the middle and end of the year 1998 was the worsening outlook on the emerging markets. Credit worthiness of almost all the South-east Asian nations was severely damaged by the crises which started in July 1997. As a result, the FIIs were facing heavy redemption pressures from the Emerging Markets Funds. The stock markets in all these countries fell continuously from March 1998 till about September 1998. The integration of the Indian capital markets with the international markets thus spilled over to Indian markets as well. However, the net outflow from the Indian markets was much lower than the other Asian countries. A further indication of the integration of the Indian markets can be seen from the upsurge in the valuations and funds inflows during the first quarter of 1999, when all the other Asian countries have also seen rising trend in stocks indices.
 
 

The sluggishness in investment in the emerging markets was exacerbated by the fact that throughout 1998-99, US and European markets showed historically high valuations, and the expectations of further rise because of the strong economic indicators there which led to reduced allocations elsewhere.
 
 

FII Impact in the domestic markets
 
 

The FIIs are major institutional investors in Indian capital markets. In the year 1998-99, the gross purchases and sales by the FIIs stood at Rs. 16,115 crores and Rs. 17,699 crores, respectively. The gross turnover on BSE and NSE for the same period is Rs. 3.11 lakh crores and Rs. 4.14 lakh crores. Thus as a proportion of total turnover on the exchanges, the FII figures do not appear to be substantial. However, since the FII trades are delivery based, the actual impact on the market is much higher.
 
 

The Graph below exhibits the Sensex movement and the corresponding FII monthly net investment since 1992.
 
 

Graph 2.25 (b) : Sensex Movement and corresponding monthly net FII investments

India and other emerging markets
 
 

FIIs perception of the Indian markets
 
 

India has consistently been viewed as one of the better and safer market as compared to the other Emerging Markets. As mentioned earlier also, the quantum of funds outflow from India has been much lower as compared to the other Asian markets. The following graph indicates the funds allocation for an ideal model portfolio for equity investments in the 30 emerging economies. This portfolio has been designed by one the largest FIIs in the Asia-Pacific and other Emerging Markets. The allocations figures are for March 1999.


Graph 2.16 Model portfolio
 
 

Source : Morgan Stanley Composite Index
 
 

Return Analysis for the Indian Markets
 
 

Indian market has shown a small negative return during the year 1998-99. The Graph in 2.13 compares the equity return in the top ten emerging markets and the US market. The returns shown in the Graph 2.17 have not been normalised in dollar terms and thus represent the absolute returns in the respective local currencies.
 
 

Graph 2.17 : Returns on the basis of index movement in various countries
 
 

Source : : Morgan Stanley Composite Index
 
 
 
 

Risk Analysis for India
 
 

The bar chart (Graph 2.18) below compares the volatility of the Indian stocks vis-à-vis the Emerging Markets and the US market. The data presents the annualized volatility calculated sometime around the first quarter of 1999. It can be seen that during the last one year the Asian economies have shown a very high volatility in their stock markets which in turn contribute to the risk. Compared to these the Indian market has been much more stable.
 
 


Graph 2.18 : Volatility Movement in Asian countries and USA

Source : : Morgan Stanley Composite Index