FIIs undeterred by the geopolitical tensions

Even as geopolitical tension is rising between India and its neighbour Pakistan in the wake of Pulwama attack, the foreign investors are undeterred by the developments as their investments have touched a 13-month high during February.

The foreign institutional investors (FIIs) have pumped in Rs 11,252 crore in Indian debt and equity markets since February 14, when a suicide bomber rammed an explosive-laden vehicle into the convoy of Central Reserve Police Force (CRPF) in Pulwama district of Jammu & Kasmir.

On the other hand, domestic institutional investors (DIIs) have been wary of investing in the markets. The DIIs have pulled out Rs 907 crore from the markets, data collated from Bombay Stock Exchange (BSE) reveals.

On Tuesday, when Indian Air Force (IAF) conducted airstrikes on various terror camps across Pakistan in retaliation to Pulwama attack, the FIIs deposited a net of Rs 1,674 crore in the Indian markets, despite markets tanking by over 200 points. On Wednesday, as well, FIIs parked a net of Rs 423 crore in the Indian debt and equity markets. On Thursday, FIIs have parked Rs 3,211 crore into the markets.

Industry sources suggest that the sudden inflow of the FIIs was on the back of the better valuations in Indian companies, along with the increased chances of Prime Minister Narendra Modi returning to power after the airstrikes.

"FIIs go purely on the basis of the valuation. The top line of all the Indian companies has seen improvement in the just concluded third-quarter earnings season. Also, there is a hope that Modi will return to power after the airstrike -- FIIs love stability. On the other hand, we are more worried about the daily market movements and are more bothered about our Net Asset Value," said a CEO of a DII, on condition of anonymity.

On the other hand, the Domestic Institutional Investors (DIIs) withdrew a whopping Rs 1,746.40 crore from Indian markets on Monday, a day prior to the airstrikes. Again on the day of airstrikes, the DIIs withdrew a net of another Rs 720 crore from the Indian markets. On Thursday, they pulled out a whopping Rs 5,241 crore.

However, DIIs are also expected to return to markets in a couple of days, as the geopolitical tensions seem to be easing.

The FIIs have parked a net of Rs 12,053 crore in the Indian debt and equity markets during the February till now, according to the data available with National Securities Depository Limited (NSDL).

According to the analysts, the FII flow is happening on the back of positive macro indicators in India. "They have been investing in the past few days. They have changed their mood on the back of the positive macros in India," said Rahul Shah, Vice-president -Equity Advisory Group, Motilal Oswal Securities.

In fact, the mood of FIIs has changed towards the entire gamut of emerging markets, with Chinese stocks also giving higher returns.

"It's evident that they haven't taken geopolitical tensions seriously," according to Madan Sabnavis, Chief Economist at Care Ratings.