The recent downslide in the stock market has once again exposed India’s over-dependence on portfolio flows, global equity research major Morgan Stanley said in its latest report on the country’s capital market.

Portfolio flows had accounted for about one-third of the capital flows into India over the past three years, it said. But, the portfolio funds have off-loaded over $2.5 billion since the recent downward momentum began on the bourses in the first half of May.

The FII dominance of the Indian markets has been the subject of a hot debate within the policy-making circles. While the Reserve Bank of India considers portfolio flows as volatile and has also been informally seeking a ban on FII inflows into equities through the participatory notes route, the finance ministry does not share its views. Market regulator Securities and Exchange Board of India too feels so long as the fund inflow is transparent with adequate disclosures, there is no need to change the existing policy.

the ongoing downslide on the bourses; just like robust FII inflows were considered to be the force behind the record-breaking rally until the bearish sentiments seeped in the market early last month.

The Bombay Stock Exchange’s 30-share Sensex dropped close to 16% in May on the back of surging FII outflows, sluggish global markets and huge profit booking at higher levels.

(www.financialexpress.com)