FII ACTIVITY
August 11, 2013:
Dalal Street analysts are weighing the views of foreign institutional investors with utmost care.
Though FIIs always command higher respect among brokers and investors as
their move can swing markets both ways, this time around one can sense a
fear on Dalal Street. This is because FII holding in Indian equities is
at an all-time high.
A Citigroup report says, foreign ownership of Indian equities has
crossed $220 billion, which means they hold nearly 48 per cent of the
market’s free-float.
So, if FIIs decide to press the sell button, Indian equities will go for a toss.
The chronically weak rupee is already worrying foreign investors.
Having bought $15.1 billion worth of equities in the first five months
of this year, foreigners have sold $2.8 billion in the past two months,
said CLSA’s Christopher Wood, whose weekly Greed & Fear column is widely followed by global investors.
The rupee on Friday closed at 60.88 against the dollar after touching an all-time low of 61.8 during mid-week transactions.
The domestic currency has fallen over 12 per cent against the US unit so far this fiscal.
The key benchmark indices, the BSE Sensex and the NSE Nifty, are still
showing some life thanks to a few heavyweights, particularly from the
FMCG and IT sectors.
A slowdown in FII investments saw the benchmark indices tumbling almost
five per cent, shattering the confidence of domestic investors, with
several mid- and small-cap stocks taking a beating.
Goldman Sachs, which recently downgraded India to underweight from
neutral, said: “Very little foreign selling has occurred in Indian
equities relative to the massive foreign inflows over the past few
years. We see increasing risk of a potential flow reversal in equities,
particularly in crowded financials.”
According to Morgan Stanley, the RBI’s dovish commentary amidst possibly
the severest liquidity tightening that the central bank has initiated
since 1998 has made the asset markets even more vulnerable to global
cues especially on possible tapering of quantitative measures in the US.
Domestic institutions such as Life Insurance Corporation, banks and
mutual funds currently lack the wherewithal to fight FII pull-out.
Earlier, they used to act as counter-party whenever FIIs resorted to
heavy selling.
But with tight liquidity, they may find the going tough in future.
LIC has been participating almost in all disinvestment programmes of the
Government, while mutual funds still face redemption pressure.
Not only the broking community and investors, even the common man, now
is hoping that the Government wakes up to the prospect of a heavy FII
sell-off. Otherwise, large-cap stocks too will be clobbered.
Morgan Stanley, which had earlier projected that the Nifty would trade
in the 5,600-6,300 range, now thinks the index Nifty is likely to be in a
lower trading range of 5,200-6,000.
“We cut our bear case target from 17,912 to 16,200,” Morgan Stanley said on Sensex.
BUSSINESS LINE
