FIIs go back to pavilion: pull out $3 bn from Indian markets

FIIs considered to be the most influential market participants in Indian equity markets and the developing debt market, have turned bearish on the market in 2016. The net inflows have turned negative for the first time in 2016 since 2008.

The total FIIs' pull out is negative due to heavy selling in debt markets by the FIIs. The net outflow in debt markets by the FIIs is $6.5 bn, which is the reason behind the negative FIIs' flows. The equity participation however is positive and the FIIs have pumped in almost $3.6 bn in 2016 so far.

The year 2008 was when FIIs sold in Indian markets to the tune of $9.5 bn owing to a global financial crisis.

Indian markets have been viewed as extremely bullish by the FIIs. In 2016 couple of events have triggered the exit for FIIs including US presidential election results.

With the US economy's data improving and the yield back home on US bonds rising, FIIs have chosen to book profits in both their debt  holdings and equity holdings in Indian markets and other emerging markets.

Ultimately it is all about growth expectation. US economy is expected to grow at a faster pace and Indian economy along with other emerging economies is expected to experience a slowdown; and the money flow is simply targeted at chasing growth.

Year 2017 thus could well be a difficult year for investors, at least the first half with FIIs not expected to turn positive on Indian markets soon.