FII buying in Dec reflects in rally

Foreign institutional investors (FIIs) have kept their date with Indian markets yet again in December, buying equities for the first time since April 2008. These foreign investors were on a selling spree for most part of the year.

Since 1999, FIIs have been net sellers in December only twice — in 2000 and 2006. This year has been terrible as far as FII selling in Indian markets goes — a fifth of the total FII selling since 1999 has come in 2008. According to the Sebi website, FIIs have invested around $53,280 million in the Indian market since 1999. Data prior to 1999 were not available on the website.

 

This December, FIIs have so far bought $443.5 million worth of equities. In 2008 so far, they have sold equities worth Rs 53,326 crore ($13,219.5 million).

Market experts attribute this to the fact that most redemptions happened in November. Moreover, some funds are actually seeing inflows. So, even though several FIIs are traditionally known to close their books in November, they have been active in the market this time around. From 1999 to 2002, FII buying in December was subdued, but it picked up subsequently as they mopped up equities, thanks to the secular bull run.

This year, valuations have also come down to levels that appear reasonably cheap, said market experts. The “early birds” are already in the market bottom-fishing at these levels, said Harendra Kumar, Centrum FCH’s research head.

The currency factor also contributed to FII investments in the Indian market, said market analysts. The rupee had depreciated to 50 against the dollar, but has now bounced back. Today, the rupee touched 47 a dollar.

Brokers said that several new FIIs have entered the Indian market in November, which has resulted in the market rally in December. Since the start of December, the Bombay Stock Exchange (BSE) benchmark index, Sensex, has rallied by nearly 14 per cent.

Large investors in the Indian market feel that domestic demand will drive the economy. “We go into 2009 with depressed investor sentiment due to the turmoil in the credit markets and apprehensions about the global economic slowdown,” said Sandeep Kothari, fund manager at Fidelity Fund Managers.

“Valuations are at the lower end of the trading range and negative expectations appear to be priced in. But we may yet see a possible undershoot on profits and valuations in the short term. We are beginning to see long-term value emerge and 2009, more than ever, will be a year for stock picking. We will be looking for companies with strong balance sheets, healthy cash flows and quality management. It is important to remember that markets generally turn in advance of economic fundamentals,” said Kothari.