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Home > Business > Business Headline > Report

FIIs begin to pull funds out of India

Priya Ganapati in Mumbai | May 17, 2004 13:28 IST
Last Updated: May 17, 2004 16:43 IST

Foreign institutional investors and hedge funds are selling in a big way leading to the crash on the Sensex, say stock brokers. polled six brokers and analysts since trading was last halted, all of whom say that a significant reason for the market to crash is the pulling out of foreign funds from the stock market.

All those polled said that foreign investors are looking for a commitment from the government towards the continuation of reforms and the promise of stable governance.

The political signals that have been emanating from Delhi in the last four days have been very discouraging for foreign investors.

The Left parties on which the Congress depends significantly for its support have asked for the privatisation process to be stopped and the divestment ministry to be dismantled.

Divestment is viewed by foreign investors as one of the strongest signals from the government as to its commitment towards the economic reform process in India.

Apart from the divestment issue, the Left parties have also be talking of raising subsidies which has again not gone down well with foreign investors.

In the last two trading days of last week, hedge funds were the big sellers and when the market opened on Monday morning, they continued with it.

According to a stock broker, anywhere between $2 billion and $2.5 billion is likely to be pulled out of the markets within the next few days. As of Thursday, $700 million is estimated to be have been pulled out and brokers say that between Friday and the close of trading on Monday, the figure will have touched $1.5 billion.

It is not just developments in India that are triggering off the sell button of foreign investors.

According to stock brokers, the emerging markets story itself has taken a downturn.

China and India have been the two emerging markets that have caught the fancy of international investors.

China's superheated economy has resulted in the Chinese government trying hard to slow it down even as investors that feel that the growth rate is too much for the economy to handle.

In India, the surprise defeat of the Bharatiya Janata Party-led National Democratic Alliance and the resulting political developments have put a big question mark on the pace of growth ahead.

"The emerging markets story seems to be over for now. From now on, investments in India is likely to be event based. Foreign investors will be very cautious and watch every step of the government before they bring their money back in," says a stock broker.

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