• JUNE 27, 2000

FIIs turn BIG sellers

That foreign investors were persistent sellers during June is a fact well known by our users. However yesterdays sell off is bound to surprise many of them, largely due to its intensity. Is this a cause for concern?

Despite the sales in June (Rs 7.5 bn so far), FIIs continue to be net investors in Indian markets (Rs 66 bn) and to that extent the concern should remain diluted. Nevertheless, the change of sentiment should be treated with caution lest it turn into a trend. With investments in India well in excess of the US$ 11 bn mark, the FIIs have grown to become an integral part of the market. Any adverse development could turn the tide of money flow, resulting in adverse consequences for the market.

Read Equitymaster's FII study

The most recent development, which could have triggered the sell off, is the government's dithering on the issue of disinvestment in key oil and telecom companies. Indeed, yesterday's key loser was MTNL, the monopoly local telephony services provider in Bombay and Delhi. Other PSUs, including IPCL and HPCL too lost heavily. It was widely (but wrongly) anticipated that the government would offer a strategic stake in MTNL to a foreign partner.

However there is one other plausible reason for the recent selling spree by the FIIs - that which is the most fundamental to the art of investing - booking profits. The FIIs, as is evident from the graph, were big buyers when the index was at 3,900 levels. Since, then the markets have rebounded over 1,000 points (they subsequently succumbed to selling pressure to 4,600 levels), and as a logical corollary they have begun to book profits.

What should one expect in coming days? Most concerns pertaining to the Indian economy (slowdown, drought, border tension and political instability) have been sorted out in recent months. Currently the key issue is the fiscal deficit and the disinvestment process (which are interlinked in the sense that a successful disinvestment process would contribute to curtailing the fiscal deficit). If the government were to make a concerted effort in ridding itself of PSUs, the market (and FII) sentiment would definitely improve dramatically (assuming, of course, that the NASDAQ does not, to use market parlance, 'tank'!). On the other hand, this issue would continue to weigh down on the markets (and FIIs) in the absence of any fresh triggers.

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