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FIIs: Back with a vengeance...

Aug 25, 2000

August has marked a change in sentiment as far as FII investment in domestic markets is concerned. Not surprisingly mutual funds too have turned net buyers. The markets, as a result, are looking up. Let's take a look at the FII numbers over the last four months or so. After having seen buoyant investment activity in April, net investments dropped to a paltry Rs 2.6 bn in May. Both June and July witnessed a sharp reversal of trend with FIIs pulling out Rs 9.6 bn and Rs 14.2 bn. Consequently the markets too sank from their highs to sub 4,000 levels. August, however, has once again seen a reversal in trend. So far this month FIIs have pumped in Rs 15 bn in the markets. Not surprisingly the markets are looking up.

Mutual funds too have shown a similar trend in the over the corresponding period. After having been sellers in June and July, they have turned net buyers on the bourses. Infact, during August, they have invested Rs 1.6 bn.

The markets in turn have responded to the inflow of funds. The BSE 30 has gained 4%, despite the rising volatility in forex markets, and the subsequent rate hike announced by the RBI.

As it seems now, the sentiment is bullish and if this level of FII and mutual fund investment activity sustains (where are the momentum investors?!), the markets could continue 'inch' up. However there are some key concerns that the market could be faced with in the near future. First is the likelihood of a fuel price hike. And the other concern pertains to the possibility of an escalation of violence in Kashmir. And let's not forget that a persistent dithering of the government on the disinvestment issue will adversely affect sentiment.

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