Are FIIs party hoppers or here to stay?

The brand HDFC is known for its conservatism, stability and profitable growth. The HDFC Group, which started as a mortgage business, now has a string of successful new businesses - mutual funds, insurance and a bank.

And the man who nurtured and still nurses the brand is the 69-year old Deepak Parekh, the doyen of the Indian financial world. Parekh was amused when he recently came across a research report titled," Besides Rio de Janeiro (Brazil), India is the only party in town."  

India is indeed the second destination after Brazil for foreigners looking for some financial excitement. The  country's capital markets  are riding a wave of euphoria after the new Narendra Modi-led BJP government took charge in New Delhi.

The  BSE Sensex , the barometer of the market, is at an all time high of 25,700 plus points. There are already reports predicting the Sensex will touch even 100,000 by 2020. 

While addressing the BFSI conference in Mumbai on Thursday (June 12) organised by SBI Capital Markets, Parekh in his keynote address said he didn't want to play the spoiler. He, however, has a word of advice. "Do remember that FIIs are big party hoppers," he said. "If they don't like your music or  the drinks you serve, they will quickly find another party to hop to."

There is no doubt that FIIs have in the past exited the Indian capital market in a rush, especially in 1998/99  when the East Asian currency crisis impacted the emerging market economies, and again in 2008 when the global financial meltdown hit the economy.

These are the two drought  years in terms of net outflow of capital from the markets.

It is, however , surprising that the FIIs have been net buyers all though in the last two and a half decades.  If one analyses the past years , the FIIs bought heavily when they first entered  India  post the liberalisation days. The buying was Rs 5,000 crore to Rs 8,000 crore every year till the East Asian currency crisis in 1998-99.

A year  later , they again stepped up their net purchases of Indian equity though the dot com  bust in 2000 slowed down net purchases. The FIIs net buying was the lowest, Rs 2,527 crore, in 2002/03. It picked up thereafter as the country saw an economic boom on the back of easy money flowing from global markets to emerging markets.

Net FII buying was in the region of Rs 25,000 crore to Rs 53,000 crore from 2003/04 to 2007/08.  In 2008/09 , FIIs were net sellers to the tune of Rs 47,706 crore.  There has been no looking back from 2009/2010 till now.

If one believes historical data , there is no major exodus of FIIs from Indian equity market. The data indeed indicate that FIIs loves partying hard. But Parekh's word of caution also make sense as though FIIs have been net buyers , but  the markets have gone through a hell in period when the inflows have slowed down.