So far this year, investment by foreign institutional investors, a key driver for the stock market rally, has crossed $14 billion, one of the highest among major emerging markets.
The benchmark indices have rallied nearly 30 per cent in 2014.
Experts say foreign investor flows will have to remain strong for the market rally to sustain.
Investors from abroad will have to put another $5 bn to surpass their last year’s tally of $19 billion.
The Street is concerned that FII flows into India could also be impacted by the tapering in the US Federal Reserve’s stimulus package -- termed quantitative easing-3.
The Fed would meet next week to announce a further tapering in QE3 by $10 billion a month, which would lead to its closure in October.
However, the real concern is on an interest rate increase by the Fed, which could see a reversal of flows to the EMs.
Shane Oliver, head strategist of Australia-based AMP Capital, says a greater focus on economic data is unlikely to change the timing of the first rate rise in the June quarter of 2015, which might cause a bit of market volatility.
“Currently, the Fed states that it anticipates a ‘considerable time’ between the ending of QE and the first rate hike, with this taken to mean six months or more,” he states.
FIIs had pumped in about $12 billion till August last calendar year. The pace of FII buying had picked up after August, when the
Sensex was around 18,000.
Since then, the market has rallied about 50 per cent and the Sensex trades above 27,000.
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