SENSEX NIFTY
Jun 21, 2013, 04.28 PM IST | Source: CNBC-TV18

No need to panic; FIIs aren't going away from mkt: Nomura

Neeraj Gambhir, managing director & co-head- fixed income, Nomura India, says the market has only seen 10 percent of the FII capital going out. He says that flows coming in and going out are expected in an open market and hence, he is not too worried about it.

Despite the widespread panic on FII pullout, Neeraj Gambhir, managing director & co-head- fixed income, Nomura India finds it a natural phenonemenon in an open market like India. Gambhir says the market has only seen 10 percent of the FII capital going out.

Gambhir says that FIIs invest in a country based on its fundamentals and considering it hasn't changed over the last six months, FIIs will continue to invest in India.

“Over a longer period of time, the investor allocations towards a country like India will only improve and as we have seen in equities over the last 10 or 15 years, not withstanding the kind of volatility, not withstanding many crisis, steadily the equity money has actually come in,” adds Gambhir in an interview to CNBC-TV18.

As per provisional data, FIIs sold shares worth Rs 2094 crore on Thursday, which is the highest figure in the calendar year 2013.

Below is the edited transcript of Gambhir’s interview to CNBC-TV18.

Q: What do you think is the mood among the foreign institutional investor (FII) debt? How do you gauge it? A lot of money, about USD 3 billion or more USD 3.5 billion walked out in probably four-five weeks, is that a hot money if you can describe it that way, exit over? Or do you think that we are going to see continued pressure albeit maybe of a slightly less quantum?

A: So far, we have not seen a very large amount of money flow out. If one sees between 2009-2012, literally about USD 30 billion worth of flows have come in into Indian fixed income market, as the authorities have actually opened up the market, they have liberalised the limits and the entire process around investing in Indian bonds has become relatively simpler and easier.

Now, what we have seen is just about a 10 percent of that money out. In any market which is relatively open and where the flows are open there is always a possibility that if some money comes in, then some money goes out as the market becomes a little volatile. So, I am personally not very perturbed about just USD 3 billion outflow, it was probably a little bit of hot money, speculative money trying to take advantage of the rally in the bonds that we have seen in the recent times and that has kind of gone back.

Now, is this a large substantial opening up of the gates of a reversal of fund flow? I don’t think so. Most of the money that has come in is completely aware of the dynamics and the fundamentals of the country, which have not really substantially changed over the last six months or so. The key dynamics of the fact that our rates here substantially higher as compared to the rates which are prevailing in rest of the world, even though the differential maybe narrowing specifically with regard to US. However, we still have a substantial yield advantage and I think that carry advantage, that yield advantage is still kind of playing up in our favour.

Q: We have some understanding of FII investments in equity. They have come over a much longer period and they are a play on growth and therefore an eight-nine percent depreciation of the rupee will not make them leg it out immediately. But I don’t know the psychology of debt investors. There it is I would assume more algorithmic. It very easy to calculate the amount of money they will make on coupon or on the paper itself and if 10 percent is lost in currency depreciation, would not that affect the arithmetic of even those who came much earlier. Therefore, would they still be wanting to go out, take their profit before the rupee depreciates even further?

A: There are different kinds of fixed income investors. You have got fairly long-term investors like sovereign wealth funds, central banks and you have also got some trading investors who are basically bank proprietary desks and hedge funds. So, a lot of these investors, especially the trading mentality investors actually come in not seeking currency returns, but they come in seeking the interest rate returns. They basically hedge the currency risk in one form or the other whether it is onshore or offshore.

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READ MORE ON  FII, Neeraj Gambhir, invest, bonds, offtake

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