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D-Street may have to brace for more damage if foreign institutional investors (FIIs) continue selling here in the wake of the US Federal Reserve scaling down its stimulus programme in that country.
In the last nine trading sessions, FIIs have sold shares to the tune of about Rs 4,400 crore on seven days, resulting in a 5.4 per cent fall in the benchmark Sensex.
Between August 16 and August 28, FIIs sold shares worth Rs 1,200 crore in eight of the nine trading days. In June, they sold shares worth Rs 2,000 crore in 13 trading days. However, on both occasions, which were triggered by a fall in the rupee, the fall in the Sensex was restricted to about three per cent.
Brokers and analysts said the selling spree was an indication the relative stability of the rupee against the dollar compared to the previous two days might not be enough to stem FII outflows.
They added most of the recent outflows had been from global and emerging market exchange-traded funds.
"This is part of global risk-off trades. These trades are against emerging markets. However, the good thing is the money that has been moving out has largely been from the global exchange-traded funds," said Piyush Garg, executive vice-president, ICICI Securities.
Some hope the stability of the rupee against the dollar will reduce FII outflows. Now, the risks to Indian markets was much lower compared to other emerging markets, owing to the rupee's stability and the improvement in the country's current account deficit in the past couple of months. "The perceived risk in Indian markets is not as high as it is in some other emerging markets," said S Krishna Kumar, head (equity), Sundaram Mutual.
Brokers said FIIs that had taken macro bets on India were squaring up trading positions in outperforming stocks "FIIs are just booking profits in certain sectors such as technology and health care, which had run up substantially. This money will flow back to India once valuations become cheap again," said Yogesh Nagaonkar, head of equity (institutional broking), Bonanza Portfolio.
