Mumbai, April 2: With the sensex plunging 617 points and Doubting Thomases projecting a slowdown in the Indian economy’s growth rate on account of the Reserve Bank of India (RBI) actions, all eyes are now on the course that will be adopted by foreign institutional investors (FIIs) who have pumped around $1.5 billion into domestic equities so far this year.

Although some may be tempted to pick their gains off the table, most of the big overseas investors are likely to ride out the trough. The FIIs are, therefore, not expected to stomp out of the Indian markets, which at present is being buffeted by a range of negative local factors.

There is a growing perception that India’s growth rate, which is running at a robust 9.2 per cent, will start to slow down though few expect the RBI to winch up rates once again.

There are deepening worries over inflation which is way above 6 per cent, the slow buildup to an uncertain election in Uttar Pradesh and continued obstacles to financial sector reforms. “These are the category of investors who don’t take knee jerk reactions. The FIIs will watch before quitting India and they will not take out their money in hurry,” says Arun Kejriwal, director, KRIS.

Kejriwal finds support from Harendar Kumar, head of research at ICICI Direct, who points out that though the stock markets could remain under pressure in the short-run, as nothing much has changed on the India growth story, the FIIs will continue to put their money here. Kumar adds that though the sentiment on emerging markets from overseas investors may not be “hot”, the Indian markets are unlikely to be affected in a major way.

The FIIs are a major force in the domestic markets and they had invested close to $8 billion into Indian equities in the last calendar year. Analysts are also of the view that though they may alter their portfolio in the coming days, a large pullout despite the inflation and interest rate worries is not likely.

It is felt that many of these investors could go in for defensive stocks and avoid shares that are susceptible to interest rate or inflation movements.

Says Dhiraj Sachdev, vice-president and fund manager (portfolio management services), HSBC Asset Management Company, “Emerging markets like India still offer a better investment opportunity to these FIIs. I don’t expect FII money to get affected.”