FIIs made a net investment of about $17 billion in Indian stocks in 2007, which was nearly 10 times of domestic mutual funds’ net investment at about $1.7 billion. However with insurance companies emerging as a major investor in stocks, the total kitty of domestic institutions are set to overtake the overseas inventors by a wide margin.

The FII flows have been the cornerstone of the phenomenal rise of the Indian stock markets, but domestic institutions are likely to surpass them in 2008, brokerage firm Sharekhan said in a latest report. Analysts at Sharekhan anticipate a huge corpus of $15- 20 billion to be invested by the insurance companies in the next two years, while the mutual funds are also likely to put in $5-8 billion. Taking into account both MFs and insurance companies, the domestic institutions would easily surpass the FII inflows going forward, the report said. With huge FII inflows being a key factor behind the rally in the past few years, even a short-term flight of overseas funds have caused jitters on the bourses, given their significant holding in the free-float market capitalisation.

Overseas investments

Since 2000, FII ownership in Indian market has risen over three-fold to 20 per cent and is now nearly three times of the total holdings of domestic MFs and insurance companies, according to global financial services major Citigroup. However, with insurers upping the ante and MFs sitting on a large pool of cash waiting to find its way to the market, analysts expect FIIs’ dominance to come down soon.