Return of the FIIs: net buyers for 6 days

(Live mint.com 14th April 2008)
For the first time this year, foreign institutional investors (FIIs), the main drivers of Indian equity markets, turned net buyers (in terms of value, they bought more stocks than they sold) for six days in a row, between 15 April and 22 April, raising hopes among analysts that the worst could be over for the Indian market and that some large investors have started a new phase of buying.
However, such hopes dimmed a bit after FIIs turned net sellers on Wednesday.
After recording its lifetime high of 21,206.77 on 10 January, the Bombay Stock Exchange’s (BSE) benchmark index, Sensex, slipped around 31% to 14,677.24 on 18 March. Since then, the index has recovered 13.77% to close at 16,698.04 on Wednesday. With this, the Sensex has fallen around 18% since the beginning of the year, recovering a large portion of its losses.
RENEWED INTEREST
“There is an upturn,” said Rashesh Shah, founder and chief executive of publicly traded institutional brokerage Edelweiss Capital Ltd. Foreign funds constitute 60% of the 320-odd institutional clients of Edelweiss.
Narinder Wadhwa, managing director of New Delhi-based brokerage SKI Capital Services Ltd, also said that “there is an increased buying interest from FIIs in last few sessions.”
“Now that the fourth quarter earnings are out, investors will look for the first quarter results (of fiscal 2009), before forming their strategy,” said Shah of Edelweiss Capital.
According to Sanjay Nayar, Citigroup’s India head, the markets could remain sober if net profits go down.
Despite the uncertainty, an upturn cannot be ruled out, “due to the huge undeployed cash with funds,” said Nandan Chakraborty, head of research at domestic brokerage Enam Financial Consultants Pvt. Ltd, in the firm’s latest strategy report.
However, a sustained market momentum is unlikely till clarity emerges over global concerns of currency alignments and stagflation, he added.
Provisional data from Bombay Stock Exchange on Wednesday’s trade showed that FIIs turned net sellers after six days.
On Wednesday, foreign investors net sold stocks worth Rs480.9 crore.
FIIs sold $4.2 billion worth of stocks in January, but in the next three months, they have been buying more Indian stocks than what they have been selling, although in small quantities.
For instance, in February, FIIs were net buyers of stocks to the tune of $1.2 billion and in March, $31 million. Till 22 April, FIIs have bought stocks worth $339 million. In 2007, FIIs had net bought $17.36 billion worth of Indian stocks, the highest in a year, since Indian markets opened doors for this class of investors in 1993.
Since the beginning of the year, there has been only one occasion when FIIs were net buyers of Indian equities for five days in a row—between 19 March and 27 March. During these five trading sessions, they were net buyers to the tune of $792 million.
This time around in April, they have been net buyers for six days in a row, net of sales, but only to the extent of $433 million.
Besides, on four occasions this year, FIIs have been net buyers of stocks for three days in row. On one such occasion, between 1 February and 5 February, they were net buyers to the tune of $1.3 billion.
In fact, on 4 February, FIIs made the highest purchase of Indian stocks in one day, around $944 million. The Sensex rose 417 points on that day. On 25 January, when the Sensex rose 1,139.92 points or 6.62% to close at 18,361.66, FIIs were net buyers of Indian equities worth $165.9 million.
FIIs wield significant power over Indian equity markets and on most days decide the course of Sensex.
According to an estimate by foreign brokerage CLSA Asia Pacific Markets, FIIs hold “43% of the free float” in Indian equity markets. Free float refers to shares of a listed firm that are freely available to the investing public.