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Foreign fund outflows highest since 2008
Why is it in the news ?
- The year 2018 will end as the worst in terms of foreign money outflows for the Indian equity markets since 2008 when markets across the globe were reeling under the sub-prime crisis and Lehman Brothers filed for the largest bankruptcy in history.
- In the Indian context, 2018 would also be only the third such year in the last decade when foreign portfolio investors (FPIs) would end a calendar year as net sellers of Indian shares.
More in the news
- Foreign investors are always been looked upon as the prime drivers of any bull run in the Indian equity market.
- However, these investors have been net sellers at almost $4.8 billion or Rs.33,344 crore during the current calendar year, till date.
Causes of outflow:
- It is primarily on account of the weakness in the rupee and the volatility of the stock markets that saw the benchmark Sensex.
- There was also heightened volatility globally due to the concerns related to the trade war between U.S. and China that made investors stay away from the emerging market pack, including India.
Domestic support:
- Most market participants believe that the potential losses this year have been largely mitigated due to the strong buying support, especially in index constituents, from domestic institutional investors such as mutual funds and the Life Insurance Corporation (LIC).
- Strong buying by domestic investors also helped the Indian stock markets overtake Germany for the first time ever in terms of market capitalisation.
- According to data from the World Federation of Exchanges (WFE), the market capitalisation of India was pegged at $2.06 trillion in December, slightly higher than Germany’s $1.9 trillion.
Concept
- Foreign Portfolio Investment (FPI) is investment by non-residents in Indian securities including shares, government bonds, corporate bonds, convertible securities, infrastructure securities etc.
- The class of investors who make investment in these securities are known as Foreign Portfolio Investors.
- Any equity investment by non-residents which is less than or equal to 10% of capital in a company is portfolio investment. While above this the investment will be counted as Foreign Direct Investment (FDI).
- NRIs doesn’t comes under FPI.
- Foreign Portfolio Investors includes investment groups of Foreign Institutional Investors (FIIs), Qualified Foreign Investors (QFIs) and subaccounts etc.
- FII is an institution like a mutual fund, insurance company, pension fund etc.
- FII is an institution who is registered under the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995.
- QFI is an individual, group or association which is a resident in a foreign country.
- The QFI should compliant with the Financial Action Task Force standard and should be a signatory to the International Organisation of Securities Commission.
Source
The Hindu.