Global Fund Reallocation Seen Beneficial

Even as the Asian flu persists, there is much speculation on the investment route to be taken by foreign institutional investors (FIIs) at the domestic bourses in the coming weeks.

With the yen still weak and the Chinese currency coming under the threat of a devaluation, two options may be looked at by the FIIs - the first is to cut losses suffered at other Asian markets by booking profits here.

The reverse strategy could be to withdraw funds from the Asian markets and plough them into the local bourses for better realisations in coming months.

"The US economy is showing signs of a slow down. When the slow down is reflected in the stock markets over there, there could be a global diversification in terms of allocation of funds. There may, however, not be an immediate inflow of foreign funds. But the local market should receive better allocation as compared to other emerging markets. This is because our bourses are relatively stable to other markets in terms of currency risk," said S Gopalakrishnan, vice president, equities, UTI Securities.

"However on the flip side, the threat of a devaluation in the yuan looms large over the global markets. As and when the devaluation occurs, one could witness a fresh realignment of the funds deployed," he added.

"It is unlikely that FIIs will immediately turn sellers because of the deteriorating global market scenario. One reason is local markets are doing relatively well as compared to other south-east Asian markets. The other reason is that even if they pull out funds at the moment, they have no other alternate avenues for investment," said a source at an European brokerage.

"Despite the chain of events in the global markets, domestic bourses still remain very attractive to the FIIs, mainly from the liquidity point of view. Today, there is tremendous depth and liquidity in most of the stocks favored by FIIs, which was not case some time back.

If an FII wants to buy or sell a large chunk, it can easily do so without causing any major fluctuation. Also, from the interest rate and currency risk point of view, Indian markets are much safer," said Suresh K Jajoo, director, Woodstock Securities. Players feel that more than the global markets developments, political turbulence at the centre is unnerving foreign players.

"FIIs have been net sellers over the past few months mainly because of the crisis on the political front. Fundamentally, too, nothing has changed on the economic front. Despite the government's statement on boosting infrastructure spending, nothing concrete has materialised. Core sector stocks continue to languish as demand for products like steel, cement and engineering have yet to pick up," said a research analyst at an FII brokerage.

Players feel that the only commendable action of the government, as far as the markets is concerned, is the move to boost the software sector.

"Some of the negative budget provisions have been rolled back and more FDI is being sought in the insurance and real estate sectors. The RIBs (Resurgent India Bonds) are expected to do well and the centre has figured out that a socialist policy does not work. ``We are now overweight on India in the emerging markets sector,'' said K R Bharat of Credit Suisse First Boston.