FII Pullouts And GDP Fall
May 7, 2012 Leave a comment
If ever you need to call which way the economy may be heading following is an indicator.It is culled from this article : http://economictimes.indiatimes.com/news/economy/indicators/fii-pullout-gdp-economy-unusually-sensitive-to-fickle-investment-flows/articleshow/13027767.cms
An analysis of GDP growth and investment flows of foreign institutional investors (FII) for the past 28 quarters reveals that whenever FIIs pulled money out of India in any quarter,economic growth fell during that three-month period.In nine of the last 28 quarters , FII flows were negative and,correspondingly,in each of those quarters,GDP growth rate dropped compared with the previous three month period.
While five of these quarters were in the tumultuous years of 2008 and 2009,the trend holds good in more normal years as well.Like,for instance,in the second quarter of fiscal year 2007-08,bang in the middle of a 9%-plus dream run for the economy.The July-September quarter of 2007 saw net outflows of portfolio investment,and GDP growth,data about which comes with a two month lag,dropped to 9.3% from 10% in the previous quarter.A similar story played out in the first quarter of 2011-12 which saw a net FII outflow of around $520 million and GDP growth easing to 7.7% from 8.3% in the preceding quarter.