Foreign institutional investors marked their biggest equity investment in the Indian stock markets this year as net buyers of equities worth Rs 7,169.5 crore (Rs 71.69 billion) in June as the Sensex headed to a new high in the first week of July.
FIIs bought Rs 53, 820.4 crore worth equities in June and sold Rs 46,650.9 crore (Rs 466.51 billion), attracted by the market's upside potential and mega initial public offerings from realty major DLF and India's largest private bank, ICICI Bank.
The price-earnings ratio of Sensex stocks hovered between 20 and 21 in the month. The PE of the Sensex stood at 21.43 on Friday, when the 15,000-point mark was breached.
This is lower than the PE of 23.06 when the Sensex touched 14,000 for the first time on December 5, 2006, signalling scope for more appreciation.
The Sensex PE represents the price of all 30 companies represented in the index divided by their earnings per share in 2006-07.
However, in December 2006, FIIs bought equities worth Rs 39,685.93 crore (Rs 396.86 billion) while they sold stocks worth Rs 43,279.50 crore (Rs Rs 432.79 billion), becoming net sellers of Rs 3,593.57 crore (Rs 35.94 billion).
One reason for this was FII scepticism over valuations. Many foreign investors, including Mark Mobius, managing director of Templeton Investments, had expressed concern over "pricey" Indian markets at the time.
In the first six months of 2007, FIIs have been steadily increasing their India exposure, pumping in Rs 24,436.6 crore (Rs 244.37 billion) against Rs 31,939.7 crore (Rs 319.4 billion) in 2006.
Their bullishness on Indian markets was reflected in the robust response to the country's two biggest issues, DLF (Rs 9,625 crore or Rs 96.25 billion)) and ICICI Bank (Rs 15,000 crore or Rs 150 billion), which hit the market in June.
FIIs placed bids for more than Rs 10,000 crore (Rs 100 billion) for DLF, and their participation was equally buoyant in ICICI. CitiGroup and Merrill Lynch put in bids worth $2 billion each through participatory notes and Warburg Pincus bid for $1 billion. Till June, the total number of FIIs in the country stood at 1,049.
Analysts are not predicting a sharp correction or consolidation, though they say currency appreciation and lower first-quarter earnings could dampen growth.
