FIIS - WHATS WRONG IN WOOING THEM?
By Ruma Dubey
A lot of people are pretty miffed that our Finance Minister, Mr.P Chidambaram, in Hong Kong spoke all things sweet which FIIs wanted to hear. He spoke about the economy bouncing back and more importantly, assured global investors fiscal deficit target would be met. He has already shown this by deferring the controversial GAAR. People are miffed because the FM is going all out to woo FIIs while we the people are suffering.
Well, their “miff” seems pretty misplaced. FIIs coming to India in hordes benefits whom? The FM alone? Of course not! If FIIs fall in love all over again with India, the stock markets will boom and the FM would have killed two birds with one stone – restored sentiments and get in the much needed foreign money to bring down the current account deficit.
And why not the FIIs? After all they are big money bags. There are seven more days in for the month to end and already in Jan 2013, FIIs have pumped in around Rs.14,285 crore ($2.67 billion) till 22 January. This is the highest ever net purchase by FIIs in January since the floodgates were opened to them in 1993. And if the same buoyancy continues, it will be a surprise to know that FIIs end the month with net purchases to the tune of $3 billion, which will be a record of sorts!
The Govt over the past few months has shown that it is working towards moving policies and has surely broken out of the policy paralysis. The way it is now pushing through reforms shows that fiscal consolidation and getting the economy back on track is its priority. And this change has boosted sentiments- not just across Indian investors but also the international investors. The message being sent is that India is serious about its economy and it will make things work. This has attracted FIIs in droves to India in the emerging markets.
Q3FY13 numbers for India Inc have also been good and there is a feeling that things have indeed bottomed out and from here on, things will only look up. A sense of optimism has come in after a long time and FIIs are also cashing in on the same. When FIIs are the true movers and shakers on the bourses today, what’s wrong in unabashedly wooing them?
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.
The other good news is that LIC is planning to invest around Rs.20,000 crore before the end of FY13 and that means all this money will come into the markets within the next 2 months.
The current rally on the bourses is largely driven by FIIs and participation by domestic investors is very low as indicated by the falling trading volumes. They will come once the feeling is established that the “feel good” factor is for real and things are indeed on the upswing. For now, the optimistic mood of the FIIs is not matched with the moods on the street and that will probably come in only if the FM announces some sops for us Indians in the Budget. And sops are sure to come in as that is the only way to make equities more attractive and lure people away from gold.
As we keep on reiterating, the entire market runs on sentiments. And to change overall sentiments, we need some stimulus, which hopefully will be ushered in by RBI on 29th Jan with a rate cut. Well, if not in Jan, surely in the next one but moods are sure to turn around!