Why foreign funds don't put their money where their mouth is?

Written by: Sunil Fernandes

 Why FIIs don't put their money where their mouth is?
Since the beginning of the year, foreign institutional investors (FIIs) have made a net investment of $10 billion in Indian equities - that's a staggering Rs 56,000 crore. In fact, it's a record figure since they began investing in Indian equities from 1992.

Now, what's interesting is not the level of investment in Indian equities since the beginning of the year, but, the staggering investments made, despite levelling all kinds of criticism on India's growth rates, government policy paralysis, rising inflation, rising current account deficit and rising fiscal deficit.

Clearly, FIIs have been investing on one hand and criticising on the other. Perhaps, their money is not where their mouth is. They seem to be saying one thing and doing exactly the opposite.

Every top foreign fund and institution recently downgraded India's GDP growth rate, but despite this the investment flows have been solid. Already, in the first 23 days of July net foreign fund inflows into Indian equities have touched Rs 9,000 crores.

Why FIIs have no choice?

India equities have outperformed not only developed markets, but also other Asian emerging markets during the course of the year. This is even in dollar terms and despite the rupee falling.

Foreign funds know as do many investors that it is better to invest where growth rates are even 5.6% (India Q4 GDP growth rates), then in regions where there is no growth like Europe, or like America where the growth rate is barely 2%.

There are no large economies other than India and China that are growing at more than 5%.

There's absolutely no choice when it comes to looking at countries with good growth, apart from India and China. Aside from this, there are no lingering worries of India going bankrupt, though there could be some lingering worries on the fiscal and current account deficit.

So, the idea should be you can go ahead and criticise, but you have an option to take it or leave it. And, FIIs know that leaving India is not a good option, when the world around them is falling apart and countries are on the brink.


Read more about: fiis
Story first published: Wednesday, July 25, 2012, 8:17 [IST]
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