Satyamgate prompts FIIs, MFs to offload stocks

Foreign and domestic fund houses turned net sellers immediately after the Satyam accounting fraud came to light on January 7.

Foreign Institutional Investors (FIIs) and domestic mutual funds (MFs) got into ‘sell’ mode starting January 7, when Satyam founder-chairman B Ramalinga Raju admitted to committing the fraud over several years. FIIs sold shares worth Rs 5,484 crore (over $1 billion), while MFs reported a record net outflow of Rs 2,232 crore between January 7 and January 28. However, domestic institutions other than mutual funds, mainly insurance companies, saved the day with a net investment of Rs 5,550 crore since then.

The last time such a big selling of equities by domestic mutual funds was recorded was in March 2008, when they sold stocks worth Rs 1,971 crore.

“Since the market outlook is biased towards a downward trend, mutual funds have been selling at higher levels and remaining in cash to grab opportunities when the market falls further…,” said Amar Ambani, research head, Indiainfoline.

Fund managers say that redemption requests coupled with the fear factor that there could be yet another major fall in share prices before the parliamentary election have driven them to sell stocks. “There is a general feeling among players that markets could be in the range of 7,500-10,000 and any further rise is possible only after the election. Therefore, the current rally, which had started in December and faced obstacles due to the Satyam episode, may fizzle out by February end as the election draws closer,” said the Chief Executive Officer (CEO) of a fund house.

The Sensex had risen 16 per cent from 8,839 on December 1, 2008 to 10,335 on January 6, 2009 before the Satyam scam came to light. The Securities and Exchange Board of India (Sebi) data also show that till January 28, out of 14 trading days, FIIs were net sellers on 12 occasions and mutual funds on 10. During this period, FIIs sold equities worth Rs 5,584 crore. On the other hand, mutual funds sold equities worth Rs 3,082 crore and bought stocks worth Rs 850 crore during the remaining four trading days.

So far in the current month up to January 28, domestic mutual funds have been net sellers to the tune of Rs 1,978 crore, nearly 51 per cent of this was done on January 7 after Raju admitted to the fraud.