The year 2003 might be remembered for the exceptional performance of the Foreign Institutional Investors (FIIs) in India. A modest cynical approach towards the markets is the best middle path for the retail investors during such overwhelming times.

Since 1993, there has been a distinct trend in the inflow of FIIs to India. The trend was that the FII inflows would be at higher levels for the first two quarters of any year and the pace would slow down in the later quarters. But the last 2 to 3 years have been a reversal in this trend. The FII inflows since the beginning of 2003 seems to prove this. The first two quarters have become very insignificant regarding the net FII inflows now. There was a gloomy start in 2003. By end of March the net inflows of FIIs were only $330 mn, the lowest since 1996. Everybody then feared that if this were to continue, things would be very difficult for India.

But, surprisingly breaking all such apprehensions, the FII inflows rose to record levels beginning April 2003 (see table FII trends). This is considered as the second best revival of FII inflows after 1996, when FII flows hit an all time high of $3.1 billion. As on September (till 15^th) 2003, the FII inflows stand at $3.249 bn. Assuming that the FII inflows would grow at the same rate, without any selling in the coming months a new record is expected by October of this year. Moreover, it is argued that this figure is understated as FIIs need not report their activities in the derivative segments to the Sebi (according to Sebi guidelines regarding FII investments announced in February, 2003). If these were also added, the net inflows would be much higher than what is projected now. However, a point of distinction between 1996 and 2003 is that unlike in '96, this time much of the FII flows are driven by investments in both debt and equities. It is calculated that around 30% of total FII inflows till date went into debt instruments (resulting from good yields in Indian debt market when compared to the yields in other international markets) as on July 2003. A significant part of the FII investment also went into equities because of their attractive valuations. The Sensex also rose to record levels during this period because of the massive FII support.

Foreign Institutional Investors, FIIs, India, cynical,markets, retail, investors, performance, inflow of FIIs, net inflows of FIIs, FII flows, derivative segments to the Sebi, FII investments, Indian debt market, international markets, attractive valuations, Sensex, massive FII support, skepticism rules, catalyst, mutual fund business, FIIs turn sellers, foreign investor, foreign exchange reserves.