India likely to see return of FIIs in 2009-10

(D. H. Pai Panandiker is the President of RPG Foundation. The views expressed in this column are his own)

By D. H. Pai Panandiker

FIIs have been net sellers of equity since May 2008. In the seven months till November, they repatriated Rs.43,000 crores. There was a pause in December and it looked as if the FIIs were back in the market to buy. But a setback came with Satyam scam which prompted them to sell again.

In the year 2008-09 there was a net disinvestment of Rs.73,000 crores and FIIs’ share in market capitalization dropped to 12 per cent from 15 per cent at the end of March 2008. Since last March there has, however, been a change which signals that FIIs may once again come back to roost.

There are reasons. Essentially, the conditions which had driven FIIs to disinvest have significantly altered and made investment in emerging economies markets possible and attractive.

The financial crisis in US and EU has eased. The stress test carried out by Federal Reserve of 19 major banks in the US surprisingly revealed that most banks had capital in excess of the regulatory requirements. That, along with encouraging balance sheets brought out by Goldman Sachs and Citibank, has revived public confidence in the banking system.

Though the financial crisis has eased recession in US and EU continues and may even deepen further. It is unlikely, however, that recession will be prolonged, as in the 1990s in Japan, because of the instant action taken by the central banks and governments in US and EU.

In any case, recession becomes a compulsion for investors to look for countries in which growth is positive. That is true only of a few countries like India and China.