FIIs withdraw $5.6 billion from debt market in June 2013

Past June 2013 was quite unfortunate for Indian currency and Indian debt market as it saw a historic outflow of FIIs to the tune of $5.6 billion which was the highest ever withdrawal in the market’s history. A weak rupee diminishes the returns earned by FIIs. The exit meant net FII investment in the Indian debt market turned negative in the first half of calendar 2013, with outflows of $1.8 billion.

The pull out shattered the inflow trend of the first five months of this year when FIIs had pumped in $3.9 billion. The net inflow in calendar 2012 was $5.9 billion. It was not only the debt market which plunged, FIIs also pulled out $1.8 billion from the equity market. Their net investment in equities, however, remained positive at $13.5 billion. Markets worldwide have been affected by the US Federal Reserve’s announcement that it will gradually withdraw its quantitative easing strategy, which has served its purpose.

What is the current status?

Indian investors fear that foreign inflows into the market will be hit if the US stimulus comes to an end. At the end of June, the cumulative FII investment in India’s debt market was at $31.7 billion, while the equity exposure was $139.5 billion. A total of 1,753 FIIs are registered with market regulator SEBI for transacting in the country’s market, with the number of registered sub-accounts pegged at 6,404.

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