Oct sees biggest ever FII flight

Narayan B Bhatt / TNN / Oct 29, 2005, 00:15 IST

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The net sales by foreign institutional investors (FIIs) stand at Rs 3,476 crore in October.

AHMEDABAD: It's a flight of capital �� of a magnitude the Indian bourses have never seen in the past, not even in the worst of bear markets. The net sales by foreign institutional investors (FIIs) stand at Rs 3,476 crore in October, surpassing the previous monthly highest outflow of Rs 3,247 crore in May 2004 when the UPA came to power.
Suddenly, the great Indian story seems to be running out of steam as the FIIs book profits much before the Christmas holidays.The weakening of the rupee may have also fuelled the FII flight in October.
This selling pressure may continue as the dollar is expected to strengthen further due to another interest rate hike by the US Federal Reserve in a few days' time. "There is no structural change in the long-term growth story of India and investors need not worry too much about the selling by FIIs.
Long-term investors using the systematic investment route will continue to make money on the Indian bourses. But short-term investors should be prepared to stomach high levels of volatility," said Saurabh Sonthalia, executive vicepresident at DSP Merrill Lynch Mutual Fund.

One should remember that this market rally, which started around May 2003, was largely driven by FIIs who pumped huge funds into India. The BSE Sensex zoomed from under 3000 in May 2003 to 8800 in October 2005.
In calendar 2003 their net inflows were $7.6 billion or Rs 35,154 crore and in 2004 FIIs' net purchases stood at $8.5 billion or Rs 38,965 crore. The first nine months of 2005 witnessed a record level of $8.6 billion.

"In May 2004, FIIs sold in panic because of the unexpected change in the government at the Centre and the backing of the Communists for the new regime. This month FIIs sold as the markets ran up too fast, leading to over-valuations across all sectors," said market analyst Arun Kejriwal.
His view is that the markets may drift down a bit more and then consolidate for a couple of months. The Sensex has fallen from 8697 on October 3 to 7686 on Friday, a fall of over 1000 points. The past week has seen a 383 drop in the Sensex after a further fall of 112.85 points on Friday.
The market breadth remained weak as 1866 stocks declined on the BSE compared to 557 stocks that rose, while 31 scrips remained unchanged. Losers outpaced gainers by a ratio of 3.3:1 on Friday.

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