Date:19/08/2005 URL: http://www.thehindubusinessline.com/2005/08/19/stories/2005081903150100.htm

Back Investment in equities: 2004-05 story
FIIs Rs 44,123 cr, MFs Rs 448 cr

Our Bureau

Mumbai , Aug. 18

THEY may be viewed as the domestic warriors on the stock markets, but in reality investment by mutual funds in Indian equities is only 1 per cent of what foreign institutional investors have invested. The Securities and Exchange Board of India's annual report for 2004-05 says that while FIIs invested Rs 44,123 crore in the Indian market, mutual funds invested merely Rs 448 crore.

However, in the case of debt investments, the reverse held true. "Comparing both the classes of institutional investors, it was found that net investment by mutual funds in debt at Rs 16,987 crore was much higher than that by FII at Rs 1,759 crore," the report said. This lower FII investments could be explained in terms of regulatory restrictions, which put cumulative limits of $1.75 billion on G-sec, including Treasury bills, and $500 million on corporate debt.

The report also says that net resource mobilisation by mutual funds declined by 95.3 per cent to Rs 2,200 crore in 2004-05. Mutual funds mobilised Rs 46,808 crore in the previous year.

UTI Mutual Fund and other public sector mutual funds witnessed net outflows of Rs 2,722 crore and Rs 2,677 crore respectively in 2004-05, as against net inflow of Rs 1,667 crore and Rs 2,597 crore in 2003-04. The sectoral shares in the gross mobilisation and redemption show the dominance of private sector mutual funds. However, resource mobilisation by private sector mutual funds also came down significantly in 2004-05.

The report attributes this to redemption pressures mainly on income and gilt schemes. "In an environment of rising interest rates, gilt schemes lost some of their appeal. Part of the proceeds redeemed from mutual fund investments might have been reinvested in the small savings schemes due to attractive rates offered by the Government along with the fiscal incentives," it said.

FIIs are also big movers in the futures and options segment. Their investment in derivatives was Rs 1,52,970 crore as on March 31, 2005. Open interest position of FIIs in single stock futures was 59 per cent by end-March 2005 followed by index futures (29.7 per cent). The share in index options was 10.9 per cent whereas the lowest investment was in stock options at 0.4 per cent, according to SEBI.