Are FIIs party hoppers or here to stay?

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India is indeed the second destination after Brazil for foreigners looking for some financial excitement. The country’s capital markets are riding a wave of euphoria after the new Narendra Modi-led BJP government took charge in New Delhi.

The BSE Sensex , the barometer of the market, is at an all time high of 25,700 plus points. There are already reports predicting the Sensex will touch even 100,000 by 2020.

There is no doubt that FIIs have in the past exited the Indian capital market in a rush, especially in 1998/99 when the East Asian currency crisis impacted the emerging market economies, and again in 2008 when the global financial meltdown hit the economy.

These are the two drought years in terms of net outflow of capital from the markets.

It is, however , surprising that the FIIs have been net buyers all though in the last two and a half decades. If one analyses the past years , the FIIs bought heavily when they first entered India post the liberalisation days. The buying was Rs 5,000 crore to Rs 8,000 crore every year till the East Asian currency crisis in 1998-99.

A year later , they again stepped up their net purchases of Indian equity though the dot com bust in 2000 slowed down net purchases. The FIIs net buying was the lowest, Rs 2,527 crore, in 2002/03. It picked up thereafter as the country saw an economic boom on the back of easy money flowing from global markets to emerging markets.

Net FII buying was in the region of Rs 25,000 crore to Rs 53,000 crore from 2003/04 to 2007/08. In 2008/09 , FIIs were net sellers to the tune of Rs 47,706 crore. There has been no looking back from 2009/2010 till now.

If one believes historical data , there is no major exodus of FIIs from Indian equity market. The data indeed indicate that FIIs loves partying hard. aword of caution also make sense as though FIIs have been net buyers , but the markets have gone through a hell in period when the inflows have slowed down.

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