It's going to be a different December for the stock markets. In the absence of foreign institutional investors (FIIs) showing any year-end withdrawal symptoms, the bourses are likely to be spared their usual December blues.
Fund managers are predicting that the FIIs are unlikely to turn net sellers in December although they close their financials this month. Typically, the FIIs book profits in early December, as they have to make payouts to their investors ahead of Christmas.
But market sources said the FIIs are unlikely to cash out this year, despite the reduction in India's weightage in the MSCI Index.
The markets are likely to remain steady this month. The main reason is that FII investments continue to be positive this year. Net investments in 2001 have been the highest in a single year since 1992, when the FIIs were first allowed to invest in the country. The second important reason is that share valuations at this point are good. So it's better to remain invested rather than book profits, analysts say.
"Actually declines in December, if any, will have little to do with FII selling. Despite the numbers, investors continue to fear that there could be liquidation by some funds. This has created a sort of resistance in the markets," a fund manager at a foreign fund said.
According to Prashant Jain, chief investment officer, Zurich India AMC, the FIIs can no longer be considered one group, as diverse funds are active in the market with different investment objectives. "Collectively they may not follow a similar trend of buying or selling," he pointed out.
Shailendra Bhandari, managing director, Prudential ICICI MF, also echoed similar sentiments: "December will be more or less devoid of any major activity by the FIIs and no major trend is expected."
The December syndrome will be missing also because the FIIs understand the Indian markets better. "The FIIs now know that India is less susceptible to a global slowdown, given its lower exposure to global markets. It's largely local factors that come to play in the performance of the markets," Jain added.
"Moreover, unlike the previous year, this year the FIIs have investments scattered across sectors and do not have concentrated portfolios, which will more or less provide a cushion for any selling spree," another fund manager stated.
The FII portfolio investment flow in the country was Rs 13,031.10 crore up to November, the highest till now and almost double last year's total inflow of Rs 6,844.1 crore.
"India has given good returns among the emerging markets in Asia in the past couple of years. Moreover, this year India has emerged as the second largest growing economy. It is unlikely that the FIIs would reduce their exposure to India in just one month," said another fund manager.