Foreign funds outflow in equities markets tops $1 bn in 2011

MUMBAI - Foreign funds, which were a major factor in the rally of Indian equities markets in 2010, have contributed almost equally in the current weakness at the bourses, having sold scrips over $1 billion in 2011 till Friday.

Foreign institutional investors sold stocks worth $283.47 million in the last trading week alone, according to data available with the Securities and Exchange Board of India (SEBI).

A combination of factors have led to this withdrawal, with analysts mainly pointing to the increasing hawkish attitude adopted by the Reserve Bank of India for FIIs looking for greener pastures in other global markets.

In a bid to tame prices, which has kept annual food inflation hovering around double digits, India’s central bank last month hiked its short-term lending and borrowing rates by 25 basis points and hinted at more tightening in the coming months if inflation did not come down.

In the past few days, unrest in Egypt, which led to global crude oil prices spiking to around $100 a barrel, has also raised the uneasiness of investors in economies like India which are mostly dependant on imported oil.

Though, prices of petrol were recently hiked by state-run oil marketing companies in India, a further hike in the fuel cannot be ruled out. Also the government may not be able to hold off an increase in prices of diesel — it still controls pricing of the fuel, unlike petrol.

Given this scenario, FIIs are looking to book profits in Indian equities markets, which last year had seen benchmark indices rally more than 17 percent, fuelled to a large extent by the $28.83 billion inflow of overseas money.

The 30-scrip sensitive index (Sensex) of the Bombay Stock Exchange, which ended Dec 31, 2010 at 20,250.26 points, has fallen over 11 percent in five weeks of trading. The Sensex closed Friday at 18,008.15 points.