FIIs may buy once markets stabilise, say analysts

Foreign institutional investors, who have net sold nearly Rs 1,000 crore (Rs 10 billion) in the Indian markets since the Budget, are likely to begin their purchases once stability returns to global and domestic markets, according to analysts.

"We have spoken to several fund managers outside India in recent days. Foreign funds are telling us that they are sitting on good amount of cash. Once the market stabilises, we will see FIIs returning to India," said Jignesh Desai, head of institutional sales, SBI Capital Markets.

He said FIIs may have booked profits in India after the index climbed over 45 per cent in calendar year 2007. In fact, Indian markets have been giving over 40 per cent returns annually in the last three calendar years.

The BSE Sensex, the benchmark index, has slipped 1,484.59 points (8.32 per cent) to 16,339.89 since the Budget (before rising by over 200 points on Wednesday), following the proposals to write off farm loans worth Rs 60,000 crore (Rs 600 billion) and hike the short-term capital gains tax to 15 per cent.

During this calendar year, the Sensex has plunged nearly 4,000 points (20 per cent) from 20,286 points on December 31. "There is a global liquidity squeeze, which is affecting our markets," said Naresh Kothari, the head of institutional equities at Edelweiss Securities.

He said the concern on inflation, global cues and fear of an early election was playing out in the minds of investors at the moment.

"A rise in inflation, which will trigger interest rate hikes, is not liked by markets," he said. The FII buying or selling always determines the direction of the Indian stock markets. This calendar year saw FIIs making net sales of Rs 34,722 crore (Rs 347.22 billion) in the cash market, according to the Bombay Stock Exchange data.

However, according to the Sebi data, FIIs pulled out Rs 12,230 crore (Rs 122.3 billion). This mismatch may be due to the fact that FIIs, which sold in the cash market, may have bought shares in the primary market through IPOs.

The BSE data show only FII trades in the cash market, while the Sebi data reflect their activity in both primary and secondary markets.

According to Sebi, there are a total of over 1,300 registered FIIs and they have pumped $63 billion into Indian equity ever since the Indian markets were opened for portfolio investments in mid-1990s. Their value of investments may be over $200 billion, though this cannot be verified independently.