Momentum investors, FIIs: Switching places - Views on News from Equitymaster

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Momentum investors, FIIs: Switching places

Jul 8, 2000

The stock markets seem to have finally broken their ‘east bound’ trip, which was a feature for a large part of June. In July so far, the markets have logged in significant gains. But, who’s buying?

The situation in the markets continues to get more puzzling. The current situation is a complete reversal of the trend witnessed in the previous month when it was the FIIs that were sellers. Presently, the momentum investors are selling while the FIIs have invested a paltry sum of Rs 1 bn in the domestic markets in July so far. Despite the lack of buying interest, the markets have risen sharply (the Sensex is up 3.3%). It is likely that delivery based buying (that’s the only alternative left!) has helped the Sensex log in gains.

In the coming weeks, three factors will determine the medium term trend of the markets. First is the state of the US stock markets and their fall out on FII investments in India. Second, and in one way more important, will be the policy initiatives of the government in issues pertaining to disinvestment. Lastly, corporates begin to announce their latest quarterly results early next week. A continued growth in earnings could buoy market sentiment (the converse could also be true, although it seems unlikely). Another development that needs to be tracked in view of the approach of a deadline announced in the union budget is mutual fund inflows. These investments will not be eligible for 54 EA/EB benefits post September and this could hurt inflows into mutual funds that currently offer such benefits.

The markets are on a threshold. And it is likely that a trend will form sooner or later. Expect the trend to be either bearish or bullish. In other words do not anticipate the current uncertain trend in the markets to last long.

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