India, the second fastest growing economy after China, has recently seen positive foreign institutional investor (FII) inflows driven by the sound fundamentals and growth opportunities.

According to analysts, the upward revision of economic growth from 5.8 per cent to 6.1 per cent, better-than-expected performance of companies in the quarter ended-June 30, the proposed new direct taxes code that might lead to savings in the tax payer’s money, and the trade policy with an ambitious target of US$ 200 billion exports for 2010-11 have all revived the confidence of FIIs investing in India. FIIs have made net investments of US$ 10 billion in the first six months (April to September) of 2009-10. A major portion of these investments have come through the primary market, than through buying via secondary markets. (Source: India Brand Equity Foundation)

FII inflows into Indian equities have been steady ever since the markets were opened up to FIIs in 1993. With the exception of FY99 and FY09, net flows have been positive. FIIs own a dominant 16% of Indian equities (worth US$147bn) and account for 10-15% of the equity volumes. (Source: CLSA Asia-Pacific Markets)

Although FIIs pulled out US$ 9.77 billion of the Indian equity markets during FY09, they have been quick to return in FY10 and within just the first four months they have nearly made up for the exit, reinvesting US$ 8.50 billion or 87% of the amount that they had pulled out in FY09. (Source: CLSA Asia-Pacific Markets)