After precipitous drop in FDI, FII inflow into India is also petering out.
Here are some excerpts from an Indian Financial Express story headlined "More FII money to Pak than to India":
Mumbai: Whether Dalal Street likes it or not, India is now the worst-performing market in the world as dark clouds have started cluttering the economic, investment and political horizons. Worried foreign institutional investors (FIIs), who came to India in droves last year, have been pulling out funds with such alacrity this year that even a much smaller — and significantly more volatile and unstable — market like Pakistan has got more foreign inflows in the last six months.
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As per figures of the Securities and Exchange Board of India, FIIs have already pulled out $497 million (including GDRs, primary market, stock markets etc) from India from January to June 22 this year. This has come as a big blow to the market which witnessed an inflow of $29.36 billion in the whole of calendar 2010. FIIs took out Rs 14,387 crore (around $3.2 billion) from the secondary market in 2011, bringing the Sensex down from 21,108 on November 5, 2010 to 17,727.49 on June 23, 2011.
Across the border, Pakistan received a portfolio investment of around $230 million in the last six months. That, too, when the Karachi Stock Exchange, its largest, has a market cap of only $35 billion whereas the Bombay Stock Exchange has a market cap of $1,500 billion.
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The latest worry of FIIs is the possibility of tightening in rules governing the tax treaty with Mauritius. If both the governments tighten the regulations governing the treaty, the fund flow through this route will come down drastically. “Funds using this route will go elsewhere. India has got minuscule funds FIIs this year,” said a fund manager with a foreign investment firm.
A large chunk of FII investment in the stock market comes through Mauritius as companies registered there are exempted from tax in India under the treaty. The government had recently indicated about reviewing this tax treaty to tighten registration norms and making the fund flows more transparent.
More FII money to Pak than to India
Good thing FDA has picked up again.
By the way, inflation is a big problem for India. Has been for last 10 years. While GDP is growing very fast, PCI is growing at snail pace. Ofcourse it doesn't help that Oil is trading around $100..