Sept song: In 13 sessions FIIs pump in Rs15,400 crore

Foreign institutional investors (FIIs) have pumped in more money on a daily basis this year than ever before, in line with rising allocations to emerging markets and driven by strong global liquidity.

FIIs have bought close to Rs421 crore on each trading day this year. This compares with average daily buying of Rs347 crore in 2009 and Rs292 crore in 2007. In contrast, 2008 had seen average net redemption of Rs224 crore per day by them.

The FIIs have turned particularly bullish in September, buying equities worth more than Rs15,400 crore in the 13 sessions so far. This huge inflow, which constitutes 20% of the overall year-till-date flows, has led Sensex to gain 2000 points this month.

Experts attribute the relentless inflows to strong liquidity and increased activity from hedge funds recently.

“The strong liquidity is leading to increasing flows to riskier assets and equities globally are moving up. The flows seem to be largely from hedge funds, while some part of it is from long-only funds as well,” said Saurabh Mukherjea, head of Indian equities at London-based Execution Noble.

“With markets having broken their earlier resistance levels, the hedge funds see this as an opportunity and are increasing allocation towards India,” said the head of sales (institutional equities) at a global investment banking firm.

However, experts feel the flows this time are more widespread as there is substantial money coming from other avenues as well.

“India as a preferred investment destination is gaining more acceptance. We are seeing inflows from all corners, be it global macro funds, hedge funds or exchange traded funds. It’s difficult to pin-point any particular category responsible for these huge inflows,” said Vaibhav Sanghvi, director - equities at Ambit Capital.  

Stabilising global macro factors and high growth in emerging market countries such as India have also played a part in increasing the appetite for equities despite valuations being a bit overstretched.

The sharp rally in September has led to the Sensex trading at 23.56 times its trailing 12-month earnings.

“Strong economies such as India have benefited from the easy global liquidity, as investors seek higher yields and look for medium- to long-term growth opportunities.

We continue to believe that India deserves a valuation premium to some of its peers due to the strong corporate profitability track record and higher dependence on domestic demand. At current levels, market valuations remain broadly in line with long-term averages, though certain segments of the market may be overpriced,” said Sukumar Rajah, managing director and CIO - Asian equities, Franklin Templeton Investments.

Foreign flows this year have risen to Rs76,700 crore, within striking distance of all-time high inflows of Rs84,266 crore seen last year. Experts see the trend of increasing inflows continuing.

“India’s weightage in various global indices is low relative to the country’s growing economic importance and any increase is likely to result in increased flows into India,” said Rajah.