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FIIs on a buying binge

New Delhi, June 4: Spurred by lower market valuations and attractive corporate dividend yields, foreign institutional investors have shovelled money into the stock markets during the month of May, making their highest single-month purchases since February 2002. Data released by market regulator Securities and Exchange Board of India (Sebi) shows that offshore funds had bought domestic stocks worth around Rs 1,200 crore.

“The lower valuation of stocks coupled with excellent yearly results of some old economy and banking stocks drove FII inflow,” said T. P. Raman, managing director of Sundaram Mutual Fund.

The main 30-stock Bombay Stock Exchange index, which currently trades at a price to earnings ratio of 13.8, is the lowest in the past five years. Moreover, the market is down by around 5.1 per cent in 2003, thereby making it one of the worst performers in the region. Raman said the banking stocks were the favourites for FIIs as it was among the biggest gainers in 2003.

Analysts also attributed the increased buying in equities due to a rise in mutual fund activity in the American market. “The inflow to US mutual funds has picked up substantially in the last three months which has an affect on the emerging market as the asset allocation increases,” said Nirav Seth, vice-president of research at SSKI Securities.

Usually, foreign fund purchases sets the trend in the domestic bourses and the sentiments are reflected by domestic fund buying houses.

An increased activity by FIIs has already led to an increase in market capitalisation in BSE with volumes rising to above 10 crore shares a day over the past week, from an average daily volume of Rs 6-7 crore this year.

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