February sees worst FPI flow into debt, equity in 15 Budget months

NEW DELHI: Snapping a consistent record of attracting dollars in Budget months, domestic equities and debt markets witnessed huge selling by foreign institutional investors (FIIs) in February to mark the worst drought in foreign inflows in at least 15 years.

Data showed that except in 2011, FIIs had a firm record of investing heavily into the domestic equity market and debt during Budget months since Sebi started disseminating FII data in 2002. Foreign investor outflows stood at Rs 5,521 crore in February, which was in sharp contrast to firm inflows seen in the past four Budget months.

FIIs had bought equities worth Rs 11,476 crore in February 2015, Rs 13,110 crore in July 2014, Rs 24,439 crore in February 2013 and Rs 8,381 crore in March 2012. There has been only one instance in February 2011, when FII flows into domestic equities were negative during a Budget month. That month, FII outflows stood at Rs 4,585.60 crore.

“I think there has been this flight away from riskier assets. There are deflation worries both relating to emerging markets and developed markets and the fact that you got negative yield curves in Europe and Japan and a few other places led trades to move away towards cash. The trend, I think, will correct itself in course of time, especially with the US Fed pausing its rate hike cycle and amid worries over the European banking system and easing of credit concerns in Europe. That itself will be big relief for the market and you will see some sort of an upward move,” said Sashi Krishnan, CIO, Birla Sun Life Insurance.

Debt loses sheen
FIIs did not spare the debt market either, as it witnessed an outflow of Rs 8,195 crore in February. The institutional category had infused Rs 13,088 crore into the debt market in February 2015.



FII inflows in July 2014 (Rs 22,935 crore) and March 2013 (Rs 4,001 crore) were huge. In March 2012, the Budget month, FIIs had sold debt worth Rs 6,588.50 crore. The inflow trend was positive in February 2011 (Rs 1,315.8 crore), February 2010 (Rs 3,146.10 crore), July 2009 (Rs 2,115.40), 2008 (Rs 2496.80 crore) and 2007 (Rs 955.40 crore) as well.

"We believe once global risk aversion subsides, substantial FII allocations will come India’s way both into equities and fixed income assets. The current scepticism in allocating capital to Indian equities due to a delay in the revival of the earnings cycle and a sharp correction in stock valuations presents an opportunity to investors to buy with a medium-term perspective,” said Ajay Bodke, CEO and Chief Portfolio Manager for PMS at Prabhudas Lilladher.