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Indian Equity Driven by FIIs

Indian stock markets are logging great gains on the back of FIIs' money

From villains of the slowdown, to heroes. Foreign institutional investors (FIIs) have transformed themselves from the bad guys of 2008 to champions within a very short span of time.

The reason behind that is that they have been betting big on the India equity story, again – after having totally disowned it last year. FIIs were net investors of a huge Rs 19,772.70 crore in the month of May when Sensex rallied phenomenally to deliver one of the best performances in about 17 years.

For the FIIs too this generated a record for the recent times. These net investments that the FIIs funnelled into Indian stocks are their highest monthly investments since August 2007, causing, to a considerable extent, the Sensex to deliver a 28.57 per cent gain.

FIIs were net investors in equities in 15 out of the 19 trading days in the month of May. The big purchases worth Rs 5,044.80 crore were made on May 19, 2009, the day after Monday, May 18, when hardly anybody was able to trade as markets were closed early because the markets zoomed up too fast and too much, with just Sensex jumping up around 17 per cent, but it was the Nifty (S&P CNX Defty) , in dollar terms, hitting the circuit breaker with a 20.87 per cent gain that terminated trading for the day.

Market sentiments were boosted for Monday by the pleasant surprise brought in by election results, which precluded the need for a coalition government where the partner parties could blackmail the government to virtual immobility. This was the highest single day net investment by FIIs since July 3, 2007.

After pulling out investments worth Rs 54,181.80 crore from equities in 2008, leading the markets to crash by more than 54 per cent, FIIs were net sellers of equities for the first two months of 2009 to the extent of around Rs 6,940.70 crore  during this period.

However, the worst times were left behind and from March they have turned into net investors in equities and have made net investments worth Rs 27,425.90 crore, making the YTD purchases for to Rs 20,485.20 crore. The Sensex has gained around 81.86 per cent since March 9 to June 1, 2009.

With such hectic activity taking place in such a short time, expectations are that FIIs may well return to India all the funds that they withdrew in 2008.