India Bullied by Foreign Portfolio Investors ~ What is New !?

India Bullied by Foreign Portfolio Investors ~ What’s New !?

In 1913, US President Woodrow Wilson expressed his concern over a secret movement toward world government in his book, The New Freedom:

 “Some of the biggest men in the U.S., in the field of commerce and manufacturing, are afraid of somebody, are afraid of something. They know that there is a power somewhere so organized, so subtle, so watchful, so interlocked, so complete, so pervasive, that they had better not speak above their breath when they speak in condemnation of it…. We have been dreading all along the time when the combined power of high finance would be greater than the power of government….”

Far Fetched ,you think,when viewing India’s Financial & Capital Markets in this context !?

Sensex is now below 27000 and FPI Withdrawals continue  and approach a billion US Dollars in May 2015  after  a second fortnight April 2015 sell off of @ two billion  US Dollars

2014 saw record FPI Inflows of  Rs 256213 crs or over US $ 40 billion (US $ =Rs 64) of which Equity Inflows @ US $ 15.2 b were the prime catalyst to take Markets to record heights

FY 14/15 that just closed the Inflows were also a record US $ 43.4 b that includes Equity Inflows of US $ 17.4 b !

Now in 2015 till date May 6,2015 FPI Outflows have been evident from mid April 2015.In this second fortnight of April they pulled out @ Rs 13000 crs or two Billion Dollars!.The Whole Month shows pull out of US $ 1.5 billion if you remove the Sun Pharma Block Deal as below

If it was not for the Daiichi Sankyo sale of it’s stake for @ US $ 3.35 b in Sun Pharmaceuticals on April 21,2015 that was purchased by FPI and thus showed Gross FPI Purchases of Rs 21344 crs for the day then April 2015 would have shown a Net Outflow instead of Rs 11721 crs Equity inflows.Infact even on April 21,2015 when FPI did the Block Deal Purchases in Sun Pharma,they also sold other Stocks for Gross Sales of Rs 4986 crs

The FPI Selling has continued in May too and in just three trading days they have sold Equities exceeding half a billion dollars    

Calendar Year 

INR crores

US $ Mn

Average Daily Equity Flow

No Of Trading Days

2015

Equity

Debt

Total

Equity

Debt

Total

US $ Mn

January

12919

20769

33688

2018

3245

5263

96

21

February

11476

13088

24564

1793

2045

3838

94

19

March

12078

8645

20723

1887

1351

3238

90

21

April

11721

3612

15333

1831

564

2395

-506

19

(Sun Pharma Block Deal Inflow 21344  Net April Outflows 9623)

May( till 6/5)

-3467

65

-3403

-542

10

-532

-182

3

Total – 2015

44727

46179

90905

6989

7215

14204

Why  are FPIs selling off ?

Immediate Two Triggers are being cited as below:

  1. Indian Government’s insistence on imposing the Minimum Alternate Tax of 20% on FPI Past Gains.It has already send out notices to 68 FPIs claiming Rs 602.83 crs.One of them,Aberdeen has succeeded in obtaining a stay order from the Mumbai High Court.Such Taxes amount to billions of US Dollars and after the IT Tribunal upheld the IT Department’s contention for MAT ,our FM,Mr Arun Jaitley asserted that such would be collected as India was not a Tax Haven.However those FPI who function from jurisdictions that have a double taxation treaty with India can examine if they can take refuge under such a Treaty.    
  2. Huge IPOs coming up in the near term in China that present prospects of quick gains.Alibaba’s Global IPO of a record over US $ 25 b in September 2014 was a raging success with the US $ 68 issued Share listing with gains of 36%

However I  had held as 2015 set in that FPI Flows will taper in 2015 for the following reasons

  1. Speculation will intensify as to WHEN the US Fed would raise the Fed Rate….could be as early as June 2015 but probably later in the year or early next year.As rates were set to rise in USA there would be a reverse flow back from Emerging Markets to take advantage.US Unemployment must continue dropping  while Average Wages must show a good rise.
  2. I also hold a view that The Eurozone will attract Equity Investments from USA after introduction of Quantitative Easing Measures in an attempt to revive the economies of the countries that constitute it and save the Euro from weakening further…they are citing USA success in doing so post Lehman Collapse in 2008.We now all know how the QE in USA pumped in additional liquidity into the markets rather than the Economy and pushed the Dow to a record of 18000.With near Zero Fed Rate some of this liquidity was attracted to emerging markets like India in search of higher gains and thus taking even our Sensex & Nifty to record heights
India has being insisting that FPIs  pay up the billions of dollars of Tax Arrears after they lost their Appeal in the Income Tax Tribunal
India is now alarmed with  just a few US $ billions of FPI sell off and have  been bullied into  pulling back by : 
  1. Instituting the Shah Committee to look into the MAT Matter 
  2. Instructing the IT Department not to send any further Notices to the FPIs for paying up

We are conceding how dependent we are on FPI Inflows to prop up our Stock Markets ! and worried that this will also impact FDI Flows into India ~ It’s been like this right for the past 25 years since 1991/92 when they were allowed to invest in Indian Equity 

I recollect the dire financial strains days of 1991/92 when our FX Reserves were down to a few Billion Dollars and  our  then Congress PM Narsimaha Rao gave a free hand to our then FM,Manmohan Singh to introduce several modern financial reforms.It heralded a huge run on Stock Markets and also gave birth to the infamous Securities Scam of 1992 masterminded by Harshad Mehta who tapped Bank Funds through multiple Bank Receipts on the same Securities with different banks to pump into Equities ~ remember how ACC touched Rs 10000 ! and how instantly Harshad Mehta gave a margin cheque of Rs 100 crs (A Big Amount then!) to the BSE ED then, M R Mayya when asked for !.He was the Big Bull that was raging against many Big Bears who Citibank & Bank of America were involved with.

This is what I recall ~Citibank’s banking license in India was in danger of being cancelled and it required Citibank’s Global Chairman,John Reed to fly into New Delhi and literally threaten our PM & FM that if the license was revoked then Citibank would pull out all Foreign Deposits which would hurl India into a major Financial Crisis by wiping out it’s FX Reserves and hurling India into defaulting on it’s External Debt Committments

Also how Manmohan Singh was accused  of letting IMF & World Bank dictate his Union Budget Speeches !….of how India was going back to the East India Company era and into financial slavery !

Of course it’s quite another accusation levelled,or rather a strong widely held suspicion that it was Hot & Havala Money that was coming in cloaked as such FPI (erstwhile FII) Inflows….in fact a media report quoted RBI stating that 75% of such money was cloaked as such !….they were told to clam up

Many leading Global Banks have many a skeleton that they actually don’t really care about because they know they can always get away by paying huge fines of billions of dollars for either deliberately mis-selling investment products or illegally fixing Libor Rates or even laundering monies and violating sanctions in place when dealing with specific countries or simply bully countries like India that are capital starved to grow their economies with financial inclusion as a key objective

India needs to preserve it’s Self Respect & Self Esteem when negotiating for Overseas FDI or dealing with FPI Outflows

Sensex is not the only Barometer for how High India holds it’s Head !     

4 thoughts on “India Bullied by Foreign Portfolio Investors ~ What is New !?

  1. Sir,

    Pranab Proposed two dratic steps in 2012 budget one we all know was GAAR and the other was I.T dept NOC for realestate dealings………but at that time Netas were long on realestate so the NOC part was removed and GAAR stayed…….

  2. I feel the problem lies with us only,as we always look for some other person to bail out,insted of working for self.In mkt we want FII to believe in our progress,but we our self will not invest.We look forward to bank fixed deposits,Gold,Property etc.We just dont want to listen any sane investment methods & then blame the system.We always love to remain in Fear.For Country we look forward to Mr.Modi,as if he has some magic wand,but we our self dont want to do anything.We just want some one to rule us & order us what we should do,as we ourself will not apply our mind.Many time i feel ,slavery is in our genes.We have to work on our self, to get out of such clutches.

  3. Agreee Hemant to a great extent…have had experience of such people in all walks of life who have such a fatalistic attitude that they remain wedded to their circumstances which are itself the outcome of inaction due to such mindsets

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