'Hot Money' from FIIs hits Rs 10-lakh crore mark

This would be the fourth time in history that net FII inflows for a year would cross Rs 1 lakh crore mark and analysts are optimistic about the next year as well.

Putting Indian markets on fire, the foreign investors have pumped in over Rs 1-lakh crore of so-called 'hot money' into stocks during 2014 -- taking their cumulative net investments here beyond Rs 10 lakh crore.

As an eventful year draws to a close, the Foreign Institutional Investors (FIIs) have made a net investment of nearly Rs 1.05 lakh crore so far in 2014 and a further Rs 1.6 lakh crore into debt markets -- resulting into a total of over Rs 2.6 lakh crore ($43.4 billion).

This has taken their cumulative net investments into the Indian equity markets, since being allowed over two decades ago in November 1992, at close to Rs 8 lakh crore.

The cumulative figure for debt securities has also grown to Rs 2.6 lakh crore -- taking the total for overall Indian markets to Rs 10.54 lakh crore (over $214 billion).

These investors, which also got re-christened as FPIs, or Foreign Portfolio Investors, in 2014 under a new regulatory regime that promises to make it easier for them to invest in India, have emerged as a key driver in the ongoing record rally in the markets here and are likely to remain so.

This huge investment flow, which belies its commonly used nomenclature of 'hot money' as such funds can be withdrawn anytime, has come at a time when foreign companies have been mostly reluctant on their FDIs (Foreign Direct Investments) that carry a common perception of being longer-term in nature.

Experts say that the final tally for 2014, as over two weeks of trading is still left this year, could be much better and there is also a chance of annual FII inflows hitting a new record high level.

The FIIs had made a net infusion of Rs 1.13 lakh crore into equity markets during 2013, while a record high amount of Rs 1.33 lakh crore was pumped in the year 2010.

This would be the fourth time in history that net FII inflows for a year would cross Rs 1 lakh crore mark and analysts are optimistic about the next year as well.

As per the market data, these investors have made gross purchases of close to Rs 10 lakh crore in the stock market and of about Rs 4 lakh crore in the debt market this year. On the other hand, their gross sales stood below Rs 9 lakh crore in equity and at little over Rs 2 lakh crore in debt market.

On a cumulative basis, these overseas investors have made gross purchases of shares worth over Rs 88 lakh crore and sales of close to Rs 78 lakh crore so far in Indian markets.

The experts believe that the inflows will remain equally strong or even better in next year, after recording their third consecutive year of net inflows during 2014. The foreign investors had pulled out a net amount of Rs 2,714 crore ($358 million) from the stock market in 2011.

"I am quite sure that the foreign flows would remain equally strong in the next calendar year as well. Actually, if the economic fundamentals show some strong signs of recovery, the foreign flows would only become stronger," Ladderup Wealth Management's Managing Director Raghvendra Nath said.

Echoing similar views, LIC Nomura Mutual Fund's Senior Fund Manager (Debt) Killol Pandya said: "As of now, we appear to be set for an economic revival after a prolonged period of economic woes – stemming mainly from inflation and low growth."

"... we appear to be recovering in terms of economic growth and our interest rate cycle too seems to have peaked. In this scenario, it is expected that our equity and bond markets ought to perform well in the coming few quarters. 2015 should be a better year for FPIs vis a vis the previous few years," he added.

While inflows into bonds have been significantly higher than the equities in 2014, the overseas investors had kept away from the debt market in 2013 and had pulled out a net sum of around Rs 51,000 crore ($8 billion) in that segment due to weakness in the Indian currency.

Interestingly, most of the inflows this year into Indian debt market has gone into government securities.

According to market analysts, overseas investors remained bullish on the Indian equities and debt markets throughout 2014, barring a few months. The sentiments had been bullish even during the first half of the year, mainly on hopes that a strong reform-oriented government will come to power at the Centre.

These positive sentiments continued after a new government took over in May and got a further boost from the reform measures announced subsequently.

While FPIs had begun the year on a positive note too, the momentum picked up in May and pumped in over Rs 41,000 crore (Rs 410 billion) in just three months till July. However, the pace of investments into equities somewhat turned slower in August and September. For some time, the overseas investors also turned net sellers of equities.

FPIs, once again flocked towards Indian stocks and bought bagful of stocks in November on positive global cues coupled with hopes from the government's reforms agenda. Since then, the inflows have remained strong.

"After the change in government at the Centre in May, there has been a significant change in sentiment and outlook towards India. Most foreign investors are finding India to be a far better choice that can generate returns in both short and long term," Nath said.

Among various emerging market economies, India is being viewed as the strongest candidate for portfolio investments, he added.