FIIs - DO THEY STILL LOVE INDIA?
By Ruma Dubey
In the midst of all this gloom and doom, the only news which kind of had a spark to it was that of US private equity firm Warburg Pincus picking up controlling stake in Future Capital at Rs.162/share for around Rs.550 crore. Pantaloon Retail is the promoter group firm and holds 56.30% stake and it is hoping to deleverage its balance sheet by selling its stake.
This news brings some succor as the weekend newspapers carried news that FIIs, in May 2012, have been net sellers for the second consecutive month, pulling Rs.347-crore funds from the equity market. FIIs had pulled out Rs 1,109 crore from the stock market in April.
When viewed in an isolated context, it makes one conclude that FIIs are selling and scooting from India; they have fallen ‘out of love’ with India. But that is a wrong interpretation. India is struggling with its domestic issues but all is not lost, yet.
If FIIs sold shares worth Rs.42,790.70 crore in May, they also did buy stocks worth Rs. 42,443.30 crore. They sold more than what they bought but they did not altogether stop buying, isn’t it? It is only when there is one track selling that one needs to worry and make drastic statements.
The other point to be noted is that given the uncertain times, globally and in India, FIIs might be currently disenchanted with equity but they continue to repose faith in India which is evident from the fact that they invested Rs.3,569 crore in bonds during May. In the current year, from Jan till May, FIIs have invested Rs.41,860 crore into the equity market and Rs.21,701 crore into the debt market. Yes, over a period of time, this investment, every month has been on a decline but this is again because of the macro economic factors and also due to the depreciating rupee.
FIIs thus continue to stay invested but then again it would be too naïve to assume that this is because they feel that India continues to show resilience. Simply put, funds need to invest and emerging markets still remain a better bet than USA, Japan or Europe. There were reports of FIIs now preferring Indonesia to India. Yes, Indonesia is indeed emerging as the new market but that country too, is a lot like India in terms of corruption and transparency issues. And its markets do not have the kind of depth which India or the others in BRIC have. So Indonesia and maybe Myanmar will see investment but to say that India will lose out to them, will be wrong. BRIC countries received 53% of the total flows of $18.2 bn in emerging markets in 2012 while developed markets like US, Japan and Europe saw a net outflow of $25 bn.
These facts plus the fact that there are PE Funds picking up stakes in Indian companies, even in these uncertain times is good news. It indicates that India has not its charm yet, despite the GAAR and retrospective tax proposals. But this month could be volatile with Greece elections on 17th June. If Greece decides to opt out, be assured, rupee will go down further as all will rush to US $ as the safe haven. And that could precipitate more FII selling.
FIIs are pure traders/investors. They are here to make money and every adversity, if it presents an opportunity, will be leveraged by them. But if they are losing money, on account of depreciating rupee, like any logical sane person, why would they stay invested?
FII ownership of Indian equities, at end of FY12, stood at more than 16% and that is no small money. If they sell, our domestic institutions might not be able to absorb all. Yes, if they sell, you might probably want to pick up blue chips at rock bottom prices because when things improve (they always do), FIIs will come back again, full steam.