After their flight last year, foreign institutional investors flocked back to bet on the India growth story by pouring in a record over Rs 80,000 crore (Rs 800 billion) in domestic equities in 2009.
The FII investment of Rs 80,500 crore (Rs 805 billion) in 2009 is the highest ever inflow in the country in rupee terms in a single year and comes a year after they pulled out over Rs 50,000 crore (Rs 500 billion).
FII inflow so far this year has broken the previous high of Rs 71,486 crore (Rs 714.86 billion) parked by foreign fund houses in domestic equities in 2007.
Market analysts believe that the FII inflow in India may continue in the next year as well, if the liquidity conditions remain strong.
"FIIs will continue to be positive on our markets and in general Indian markets will fare well in 2010," Purpleline Investment Advisors director P K Agarwal said.
Delhi-based SMC Capitals Ltd's Equity Head Jagannadham Thunuguntla echoed the view, saying, "If liquidity conditions remain strong next year, one can expect FII inflows to remain strong into India even in 2010 as well."
During a year when the stock market barometer added over 70 per cent to its valuation, foreign institutional investors (FIIs) made a net investment of whopping over Rs 80,500 crore (about 16.8 billion dollars) in the Indian share market.
The Bombay Stock Exchange's benchmark Sensex, comprising 30 bluechip stocks, has gained more than 70 per cent so far in 2009, one of the best performer among leading global bourses.
"However, if dollar-carrytrade-unwinding starts, then one can expect rush of FII outflow from the country, resulting in pressure on Indian markets," he cautioned.
Significantly, last year the FIIs had pulled out a net Rs 52,900 crore (Rs 529 billion) from the domestic bourses --a trend triggered with the collapse of global financial services icon Lehman Brothers in the middle of September 2008.
This selling trend continued till the first two months of the passing year.
However, with the sign of revival of economies, the trend turned positive during March and overseas investors started betting big on the domestic bourses.
"As the liquidity conditions started improving after the governments across the world started putting in the stimulus packages, FIIs again tried to come back starting March 2009," Jagannadham explains.
As they came back, even Indian markets staged big rally. Moreover, FIIs don't have many other choices but for coming and investing in the high growth economies of India and China, he added.
The trend of strong FII inflows to the tune of Rs 31,000 crore (about 6.3 billion dollars) witnessed during April-June quarter gained further during the September quarter this year and the period witnessed an infusion of hefty Rs 34,313 crore (Rs 343.13 billion).
So far in the December quarter, foreign fund houses have made a net investment of about Rs 22,000 crore (Rs 220 billion) in the stock market, amid a period that witnessed the Dubai debt crisis.
Moreover, in the debt instruments, FIIs have made a net investment of about Rs 5,200 crore (1.1 billion dollars) so far in 2009, according to the market regulator Sebi data.
Interestingly, the whopping inflow by FIIs into the local stock markets has alarmed the government and other authorities concerned.
The inflow has also made industry chambers like Assocham demanding a two-percentage point tax on FII funds, whereas the exporter body FIEO (Federation of Indian Export Organisations) demanded government intervention to contain the flow.
According to the FIEO, the FII inflow had been making the rupee stronger against the American greenback, rendering the exports incompetent from price angle.
Last month, the government said record investments in the equities market by FIIs was not a matter of concern, but it would act if it finds any distortions.
"It (FII inflows) is not a matter of concern. We have a system of monitoring. Whenever we find that there are some distortions, we have the arrangement to counter them.
Therefore, it is not disturbing," Finance Minister Pranab Mukherjee had said.
However, describing the foreign capital inflows as the success story of India's recovery, Reserve Bank Deputy Governor Subir Gokarn recently said that the inflow should not be viewed as a threat at this point of time.
"You could see them as a positive sign which is that they reflect increasing global confidence in Indian recovery," the newly appointed Gokarn had said.
During the year, the number of registered FIIs increased by 114 to 1,708, while the tally of registered sub-accounts rose by 458 to 5,330, according to the Sebi data.
