How are FIIs’ flows captured?

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February 24th, 2009 BG Shirsat

Foreign institutional investments in Indian companies through primary and secondary markets doesn’t appear to be an accurate benchmark of the real FII inflows/outflows in Indian equities. Securities and Exchange Board of India’s (Sebi) daily trend in FII investments captures all activities undertaken by FIIs in the Indian securities market, including trades done in secondary market, primary market and activities such as right/bonus issues, private placement, mergers and acquisitions etc.

This means Sebi’s FII data is the buying and selling of securities in the primary and secondary capital market, and not the money that comes in or leaves the country as assumed by media and investors. If FII inflows/outflows are buys/sells on equity markets, then there is possibility that net inflows/outflows on a given day could be just a book entry.

The Sebi data on FII investments is in rupee terms and dollar value is only conversion of rupee/dollar rate of the day. Does it mean that inflows/outflows into India and out of India are not available? I tried to get an answer from Sebi through an e-mail almost a month ago, but I haven’t got a reply yet.

When I enquired with RBI about net foreign currency data on FII activities in Indian equity markets (primary and secondary markets, not FDI), RBI said FII inflows/outflows data is source from Sebi. However, as per Sebi’s definition, the FII data is just buy/sell on equity markets and not real flows.

Also, FIIs have been trading heavily in futures and options with their open interest positions varying 35-45 per cent. So they must be making or losing money on their trading in F&O. Where are these inflows and outflows accounted?

Is it that the profit made in the F&O segment gets diverted to buy shares in the secondary markets or shares from primary markets? Even their investment in preferential offers and qualified institutional placement (QIP) issues appears to be purchases through the Indian money recycled. For last one year, FIIs were net sellers on the cash as well as the F&O segment, indicating huge outflows. But nowhere this is getting reflected in term of outflows in foreign currency.

So, my gut feeling is that FIIs’ inflows/outflows may be very little in the last three years and most of the money they have made in F&O markets has been recycled in the cash market. The foreign fund data sourced from EPFR (Emerging Portfolio Fund Research) shows that India dedicated funds have seen outflow of $2 billion in 2008, and though it is not strictly comparable, Sebi’s outflow of $13 billion is still substantially lower.

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4 Responses to “How are FIIs’ flows captured?”

  1. Ankur Mishra Says:

    I guess we can solve this problem using the RTI act. We might be able to figure out the content after that report.

  2. Prof S Shivakumar Says:

    I agree with what the author says. I am one of those who are handicapped for want of genuine information on the subject. Hopefully, at least the financial press will do something about it.

  3. Prashant Sawant, KNG Sec LLP Says:

    A very good’s been a nagging issue for long time..kinda pandora’s box! Under the name of ‘transperancy’ SEBI just shows the data; there are enough doubts whether it is actually ‘FII’ money! As per my understanding, RBI data should come from banking route and SEBI from trading. So, there is always a difference b/w SEBI and RBI data.

  4. Rupesh shah Says:

    good articals …..


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