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Sudhanshu Ranade

Chennai, Sept. 26 The market reacted excitedly to the news that net FII flows between April and June 2007, at $ 7.4 billion, were twice the total of $3.2 billion in the preceding twelve months put together, but paid little attention to Balance of Payments data on outflows.

Still, some curious things have been happening on this front as well.

Till FY 2002/3 net FII flows were small and steadily declining. There was a sharp spike the next year, from $ 0.4 billion to $10.9 billion, but simultaneously the proportion of net to gross flows began to drop.

So much so that in FY 2006/7, when total inflows rose 61 per cent over the previous year, ‘retained’ flows accounted for only 3 per cent of this figure. $ 105.8 billion came in, $ 102.5 billion went out.

The corresponding figures for 2004/05 and 2005/06 were 22 and 15 per cent respectively. But because of the large ‘weight’ for 2006/07, the average for the three years was only 10 per cent. For every ten dollars coming into India, only one remained behind.

If India were no longer a good destination, total inflows would have slowed to a trickle. Instead they have been growing by leaps and bounds. Clearly some other explanation is called for.

An analysis of shares held by FIIs in S&P CNX 500 companies revealed a value increase of Rs 108,608 crores between March and June 2007, from Rs 735,683 crores to Rs 844,291 crores. In other words, the value of FII holdings rose by $27 billion, four times as much as inflows.

But it is more useful to compare the June 2007 value of FII holdings with net, unrepatriated, dollar-denominated inflows of $58.6 billion. Evaluating these at a conservative Rs 45 to a ‘dollar’ gives a figure of Rs 263,700; leaving FIIs with a tidy ‘book’ profit of Rs 580,000 crores; more than twice the money they brought in.

And to this one has to add the value of FII investments in unlisted companies, their cash/bank balances, and the returns that the morrow will bring.

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