KSE: FIPI down 77 percent in first half fiscal year 2011

The foreign investors' portfolio investment (FIPI) at the local equity market declined by 77 percent to $63 million in the first half of 2011 as compared to $271 million in the same period last year. With the daily trading volumes in local bourse shrinking to the nine-year low levels, foreign flows, an important indicator to gauge market depth and strength, have also declined, analysts said.
"The slowdown in foreign activity was seen across the developing economies due to soaring inflationary pressure and high interest regimes," Furqan Punjani, an analyst at Topline Securities said. The same trend was replicated in local bourse where foreign activity was seen declining in last six months also due to limited trading activity at Pakistan market, he added.
Total foreign activity during last six months stood at $750 million (gross buy of $406 million and gross sell of $345 million) which is almost 29 percent lower than $1.1 billion in the same period last year. While net foreign buying by foreign funds in this period stood at $63 million compared to $271 million in same period last year, down 77 percent, he added.
Punjani said that after huge foreign inflows seen in developing markets including Pakistan last year, the foreign fund managers seem to have started to reduce their exposure to these markets. This is linked to cautious stance by global investors after concerns over rising inflation in these economies resulting in high interest rate scenario. Subsequently, reduced inflows were witnessed across Asia, which includes countries like China, India, Vietnam, Korea, Taiwan and Thailand.
During the period under review, India, the fastest growing economy in South Asia, attracted foreign net inflows of a mere $293 million as against $6.9 billion in the same period last year. In addition to the aforementioned, slowdown in the foreign inflows can also be attributed to reduce activity at the local bourses where volumes have dipped to record 9-year low. The investors have opted to remain on the sidelines on account of heightened uncertainty on the political and economic canvas. The investors' confidence has been further shattered by re-imposition of the Capital Gain Tax and its cumbersome calculations. "As a result foreign flows were affected as offshore investors found difficult to execute their desired orders at KSE," he added.