Foreign institutional investors pulled out close to Rs 50,000 crore (Rs 500 billion) at the domestic stock market in 2008-09, almost equalling the inflow in the previous fiscal, but analysts forecast flows will resume later next fiscal.
FIIs' net outflows have been Rs 47,706.2 crore (Rs 477.06 billion) till March 30 in the financial year 2008-09 as against huge inflows of Rs 53,000 crore (Rs 530 billion) in the previous fiscal, according to latest information on the Securities and Exchange Board of India website.
Analysts believe despite the huge outflows this fiscal, FIIs may resume investments in Indian equities later in FY 2009-10, as the country still remains an attractive investment destination with sound fundamentals.
"Going forward, we believe that while the near-term could remain volatile on the FII inflows front as elections are around the corner, but broadly, . . . there is a high probability that we will end FY2010 with positive inflows from FIIs," Angel Broking Research head Hitesh Agrawal said.
Global institutional investors had started to pull out money from emerging markets including India from September 2008 in the face of a severe liquidity crunch in the US and UK due to the global economic crisis.
A major chunk of FII selling of over $3 billion had taken place in October (2008) alone, which saw the Sensex going to its lowest level in the last three years. The benchmark index had plunged to a low 7,697 points in October amid sharp outflow from FIIs.
In 2008-09, FII were net sellers in 10 months, while in April 2008 and March this year they emerged net investors, the Sebi data show.
"FII inflows are likely to rise substantially in FY10 as India still ranks as the second best growth country in the world. In fact, the selling of FII ... from Jan 2008 to March 2009 resulted into (an) outflow of over $14 billion in real terms," capital market research firm CNI Research CMD Kishor Ostwal said.
In dollar terms, FIIs have pulled out a little less than $10 billion from Indian equities this financial year.
"FIIs are likely to await the right time to resume their inflows into the country and only after a bullish trend sets in (that) foreign investors would increase their inflows in the domestic market.
"The second half of FY10 may see increased FII inflows as global conditions are expected to improve by then," Geojit Financial Services Research head Alex Mathew said.