• FEBRUARY 11, 2000

FIIs lead the bull charge in the market

According to Sebi, foreign institutional investors (FIIs) have pumped in over US$ 200 m during the first ten days of February. The rise in inflows has sparked a sharp rally in market indices.

FII inflows seem to have arrived a month after the market expected them to. Infact, there was a sharp rally in December that was largely attributed to the potentially large inflow of foreign funds during the month of January (US$ 45 m). The markets have been near euphoric on account of the surge in FII inflows. Infact the Sensex has gained over 11.2% in the current month.

The FIIs have reason to be showing keen interest in the Indian markets. The economy is rebounding after the recent slow down. Added to this is the slew of reform measures announced by the government. These pertain to various issues including insurance and foreign direct investment. Then there is India's information technology sector that has performed exceeding well in recent years. This has again generated significant interest among foreign investors.

However, the picture is not all rosy. Three primary concerns remain. The first pertains to the sharp rise in the fiscal deficit. This has created stickiness in the form of high interest rates, adversely affecting investment prospects. The second, and a more visible, concern is the border tension with Pakistan. The discord could spark of a conflict and this could adversely affect the economy. Finally is the issue of political unstability given that the present government is a coalition of number of small constituents. Fresh elections would result in a delay in implementing reforms apart from the huge bill (the last elections cost Rs 4 bn) the government will have to bear.

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