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The cat and mouse game

A Sasikant

This month has been excellent for the Indian stock markets. The market barometer, BSE Sensex touched an all-time high of 6,150, which no one's wild imagination would have thought of being possible a year ago.

Foreign Institutional Investors (FIIs) are the stars of this rally, having pumped in Rs 2400 crore ($ 0.55 billion) in the last 16 trading sessions. Compare this to last year's toal investment of $1.56 billion, and you can see why the market is touching new highs. Equity inflows were much lower in January 2000 at Rs 151 crore ($ 34.8 million).

This is the second time that FIIs have brought in a blistering bull market. After the collapse of the Vajpayee government in April 1999, the FIIs came in hordes and invested Rs 1673 crore ($394 million). This had pushed the Sensex from 3200 points to 4,200 points.

While there were some days when FIIs were net sellers in the 1999 rally, this time there has not been a single day which notched an outflow in February.

Whearas FIIs have been pushing the market indices, domestic mutual funds have been net sellers. A glance at the investment pattern will spring a surprise. Mutual funds have been continuous sellers barring two days this month. Though the numbers are relatively small at net sales of Rs 792 crore, it does raise eyebrows on why their selling. Moreover, a lot of money is flowing into mutual funds these days and there have been a few new issues too.

But as one BSE broker says, "No big mutual funds are selling. It could just be portfolio churning by small mutual funds." If the rally sustains, there will be a few fund managers with egg on their faces.

K R Bharat, managing director of foreign stockbroker Credit Suisse First Boston remarks, "Yes, the rally will gain further momentum once the Budget is announced and if the three key issues of fiscal deficit, privatisation and infrastructure bottle-necks are addressed seriously."

With this kind of FII purchases, one would have expected an across-the-board rally but that is not the case. The buying is in few concentrated sectors of infotech, media and telecom only; fast moving consumer stocks like SmithKline Beecham Consumer and Nestle, and pharma scrips like Glaxo amd E. Merck are at yearly lows.

FIIs are also churning their portfolios, says a domestic broker. This is evident from the gross sales figures. Money seems to be moving out of the earlier FII favourites of FMCG, pharma and a few cyclicals into software, telecom and entertainment.

Will the stocks in these sectors and the market sustain the current levels? Difficult to say. "But every decline looks attractive," quips a fund manager.

Trend in investments of mutual funds

Trend in investments by FIIs

Stocks

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