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MUMBAI, June 4: Foreign portfolio investment flows into India plummeted 85 per cent in May from a year earlier, as foreigners pared exposure to domestic equities out of concern over peace and security issues.
Over the first five months of calendar 2002, foreign inflows dropped 71 per cent — to $645.5 million from $2.2 billion in the same period last year, Securities and Exchange Board of India (SEBI) data shows.
Triggering the decline is the threat to domestic stability aroused by the Hindu-Muslim rioting which began in February in Gujarat, and fear of war breaking out with nuclear-rival Pakistan.
“Despite attractive valuations from a fundamental standpoint, we’re curbing our exposure to India out of concern over the multiple threats to peace and security,” said one Hong Kong-based manager of an Indian equity fund, speaking on condition of anonymity.
“It’s been one thing after another.”
The benchmark Bombay index tumbled more than nine per cent, whipping out about $6 billion in market value over the last 14 trading days of May.
Foreign funds owned a total of $15 billion of Indian assets, both stocks and bonds, as of May 31, according to SEBI.
While that is just a fraction of the $1.2 trillion value of the nearly 10,000 stocks listed on the Bombay Stock Exchange (BSE), the influence of foreign investment flows is greatly magnified by a single fact.
Foreign funds are active investors in the 50 most heavily traded stocks.
Those 50 stocks accounted for 81 per cent of the turnover by value on the BSE in the past year to March, according to the BSE’s statistics department.
FUND-FLOW SNAPSHOT: In May, foreigners remained net investors in Indian securities, but just barely and due entirely to buying of Indian bonds, the SEBI data shows.
Foreigner holdings of Indian securities increased by $24.9 million, down steeply from a $166.1 million inflow in May 2001.
Foreigners were net sellers last month of Indian equities, paring their holdings by $35.2 million. They remained net buyers of Indian bonds, acquiring $60.1 million more than they sold.
In the January-May period, foreign holdings of Indian equities increased $530.8 million, down sharply from $2.2 billion in the same five-month period last year.
Day-by-day data shows foreign investors were particularly spooked by indications last week the Indo-Pakistan crisis was escalating into a nuclear showdown.
Foreign funds made their biggest single-day equity sales of 2002 late last week after Pakistan’s ambassador to the United Nations said Islamabad was prepared to respond with nuclear weapons if attacked by India, which has significantly more conventional military firepower.—Reuters
