Millennium Post

FII party set to end? Inflows may halve to $20 bn in 2015

Swiss brokerage Credit Suisse on Wednesday said the robust foreign inflows into the country's debt and equities markets will halve to $18-20 billion next year on a slowdown in the sovereign wealth funds' (SWFs) play.

"The FII (foreign institutional investors) inflows into the domestic markets will come down to $18-20 billion in the next 12 months, which is half of the current inflows," managing director for equity research Neelkanth Mishra told reporters here. He attributed this primarily to a possible slowdown in pumping in money by the SWFs.

SWFs are short on allocatable resources due to the fall in the crude oil prices, Mishra said. FIIs hold as much as 27 per cent in the over $ 1.6 trillion Sensex market capitalisation as of the September quarter, which is at a historic high. Currently, the inflows are almost evenly split between debt and equities, (as there is a $25 billion cap on FIIs' holdings in government bonds, though there is a huge demand for more) and Mishra pointed to his in-house research which said around 40-50 per cent of the inflows into domestic equities come from SWFs.

It can be noted that oil prices have slid to a five-year low of $66-67 to a barrel. Since June, there has been a massive 35 per cent fall in the Indian basket of Brent crude. Many of the countries in the Middle East like the UAE and Oman have very active SWFs. Even though the policy-makers sometimes blame such flows to be "fickle", the FII inflows are important for funding the current account gap and reducing the overall deficit, which surged up to 2.1 per cent in the second quarter as against 1.2 per cent a year-ago. When asked about flows from pension funds and insurance companies, Mishra acknowledged they are getting interested in domestic markets, saying they spend a lot of time in due diligence before taking an investment call.
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