GDP figures impact FII decisions in June

Foreign investors have pulled out over Rs 1,000 crore in the first eight days of trading this month from bourses amid concerns over domestic economic growth and depreciating rupee.

Between 1 and 8 June, foreign institutional investors (FIIs) made gross purchase of equities worth Rs 16,954.10 crore and sold shares valued at Rs 18,021 crore, translating into a net outflow of Rs 1,067 crore, according to the data available with the market regulator SEBI.

FIIs had pulled out Rs 347 crore from the equity market in May and another Rs 1,109 crore in April.

Market experts attributed the outflow to a slew of reasons, such as depreciating rupee, slowing economic growth, high fiscal and current account deficit as well as lack of reform momentum. 'Foreign investors are staying away from the Indian equity market, despite having an attractive valuation, mainly on account of volatility in rupee, which is hovering around the 56-level against US dollar,' a broker said. He further said, 'In any country, foreign investors get badly hurt if the local currency continues to depreciate, because FIIs bring in dollar to invest and take back less of it when they sell.'

Another major setback for FIIs was slowing economic growth. The latest official figure showed that in 2011-12, the country's GDP growth has dropped to 6.5 per cent, and, even worse, the growth in the January-March quarter was only 5.3 per cent, lower than the economist projections.

In June so far, while foreign investors took out a total of Rs 1,067 crore from stocks, however they seem to be bullish on the debt market and poured in Rs 1,927 crore. This takes the collective net investment into stocks and bonds to Rs 860 crore during the period.

In the first three months of the calendar 2012 witnessed FIIs pumping huge capital into the equity markets, while in the the next two months of the second quarter saw foreign investors pulling out funds from the country.

After taking the latest withdrawals into account, FIIs have made an investment of Rs 41,427 crore into the equity market so far this year and Rs 21,107 crore into the debt market during the same period.

As on 8 June, the number of registered FIIs in the country stood at 1,754, and total number of sub-accounts were 6,343 during the same period.
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