Dec 1, 2003|
'Markets lose ground on concerns over the status of Foreign institutional investor (FII) inflows into Indian equities'. These kinds of statements were prominent in the media citing reasons that the markets are on wobbly grounds in the wake of uncertainty over the inflow of FII monies into the Indian stock market. There are some concerns amongst investors that the 'big money' might be pulled out in the month of December as fund managers across the globe opt for their annual vacations vis-a-vis the stock markets. Further, since their bonuses are linked to the amount of profits earned by the funds managed by them, they would be squaring off positions and booking profits so as to maximize their bonuses. In this article, we try to throw some light on the actual FII 'December behaviour' and decide how much of the concerns are warranted.
To arrive at some conclusion, on looking at the data provided by Securities and Exchange Board of India (SEBI) for the FII inflows into Indian equities, one would notice, quite contrary to popular belief (including ours previously), that the concerns over the drying up of FII money is not valid. This is because, in the last 5 years, there has been only one instance when the FIIs pulled out of Indian equities. (See table below)
Investments (Rs m)
It can be seen in the table above that it was only in the month of December 2000 that FIIs were net sellers of equities in the domestic markets. On the other 4 occasions, they actually pumped in money, which is partially reflected in the gains on the index (Sensex performance). Of course, here we are not saying that because of FII money, the index managed to perform. Because, if this would have been the case, then the Sensex performance for the month of December 2001 should have had been similar to the other months (barring December 2000).
On the basis of the above, a couple of conclusions can be arrived at. First, the concerns that FIIs pull out money in the month of December, which leads to weakness in the stock markets, does not hold true. Secondly, it is not necessary that when FIIs withdraw the money, the markets 'have to' fall or when they put in money, the markets 'have to' rise. The cases in point here are the December months of 2000 and 2001. However, at the same time, one may argue that the situation this time is different to the extent that compared to less than US$ 3 bn in 2001 and under US$ 1 bn in 2002, this time around, the amount invested in Indian equities is a staggering (according to Indian parlance) US$ 5.1 bn and this gives the creeps that some money could flow back. However, it must be noted that barring a 3-4 days in the month of November, FII inflows have, as yet, shown no signs of slowing down.
This time the difference is in the way India is being perceived by the international investor community. India has been able to command respect in the international arena, and this would help foreign investors to stay put on the Indian economy and the Indian markets. Further, selling pressure by FIIs cannot be linked to the fact that their performance is judged by the profits made by them in a year. This is because gone are the days when the performance of a fund manager was based on actual profits booked. Currently, the Net Asset Value (NAV) is enough an indicator of the performance of the fund manager.
It won't be surprising, if similar concerns of the likelihood of FIIs pulling out money from stock markets surface again next year during this time. However, long-term investors can avoid looking at the monthly performances of the stock markets. In fact, such temporary corrections in the markets should be viewed as an opportunity to buy into quality stocks. So, stay invested, as the Indian story is not over yet and 'Welcome December'!
More Views on News
Jun 10, 2017
Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.
Aug 18, 2017
Buying the index now will hardly help make money in stocks even in ten years.
Aug 18, 2017
Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.
Aug 17, 2017
PersonalFN simplifies the mutual fund account statement for you.
Aug 17, 2017
A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407