India is yet to see serious FII selling: Five facts

Foreign institutional investors own close to $200 bn worth of Indian equities. A good $87 bn of that money is held through emerging market (EM) funds domiciled in US or other countries. The inflows and outflows received by these funds have a significant implication on the buying and selling of FIIs in India and other countries like China, Brazil, Russia and others.

Here are some facts:

• Dedicated emerging market funds saw a net outflow of US$1.1bn for the week ended May 30, 2012. This is the fourth consecutive week of outflows reported by dedicated EM funds with cumulative outflows of US$6.1bn. “We have reached 8 out of 10 weeks of outflows, this week,” Morgan Stanley, a large global bank said in a note last week. This means that investors have taken out money each week, for 8 out of past 10 weeks.

• The year 2012 so far has witnessed positive flows from investors that invest into emerging markets like India. Year-to-date (YTD) in 2012, Indian equity markets attracted a net inflow of $1.56 bn. In comparison, China has received $3.79 bn, Russia ($1.66 bn) and Brazil ($1.65 bn). The four BRIC countries received 53 per cent of the total flows of $18.2 bn in emerging markets in 2012. In 2011, investors pulled out $46.8 bn from emerging markets. During the peak of the global economic crisis in 2008, FIIs pulled out $49.4 bn from emerging markets.

• During the year so far, developed markets like US, Japan and Europe have witnessed a net outflow of $25 bn. This means investors continue to bet on emerging markets and put money in them while pulling out money from developed markets.

• Fund managers allocate money according to the allocation in benchmark indices. Morgan Stanley Capital international or MSCI regional and country specific indices are used by investors. Over the past one month, MSCI India index has lost 11.9 per cent. Regional benchmark indices like MSCI Emerging Market Fund or MSCI Asia Pacific excluding Japan have performed better than MSCI India indicating an underperformance of Indian equities in May 2012. The MSCI India index is an underperformer for the past three months as well as for the past 12 months.

• FIIs have not pulled out (yet!) any significant chunk of money in 2012. In fact, FIIs are net buyers to the tune of $8.6 bn this year. This is despite the shock of general anti-avoidance rules or GAAR and policy paralysis. This clearly shows that investors are patient about India despite odds. This is largely due to the uncertainty prevailing elsewhere in the world and has got nothing to do with India’s resilience.

(With inputs from Morgan Stanley report)