The Telegraph
Since 1st March, 1999
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Advance warning on FII exit rush

Mumbai, Dec. 12: The Securities and Exchange Board of India (Sebi) has some misgivings on the unchallenged domination of foreign institutional investors (FIIs) in the stock market. It said the possible impact of a reversal in the flow of foreign funds is “a cause of serious concern”.

In the current bull rally, FIIs had yanked the sensex from the pits to a level of over 5300.

There is no one to counter-balance them if they decide to exit. Most of the institutions, which were big players in the market earlier, have been dwarfed by the aggressive presence of FIIs.

In a report to the finance ministry, Sebi has concurred with the serious concern that a few politicians have recently expressed on the role of FIIs.

“In view of the increased FII inflow in recent months and a corresponding rise in market indices in the same period, the possible impact of a reversal in this flow is a cause of serious concern,” Sebi said.

“There is a market design issue in as much as there are no countervailing domestic institutions to meet the onslaught of the FII flows and also that the depth of the Indian securities market is not potent enough to absorb the overseas interests,” the market regulator said.

FIIs have been bulge-bracket investors in the Indian market. Contrary to popular belief, their investments have hardly slowed down in December. In fact, it has accelerated in recent times.

FIIs pumped in Rs 612 crore on December 11. In December, it has made a net investment of Rs 2,659 crore in the Indian markets and till date (the calendar year) Rs 31,748 crore.

A few market players share Sebi’s misgivings. A prominent broker said the fact that FIIs are investing huge sums reveal their confidence in the Indian markets. Fidelity Management alone has pumped in Rs 1,822 crore since May. Janus Investment has invested Rs 1,369 crore, while Morgan Stanley has pumped in Rs 1,138 crore.

This kind of investment cannot be easily divested, said an analyst. They cannot exit in a hurry; at the most they may churn their portfolio, he added.

Others pointed out that the FIIs were trapped by virtue of their huge investments. “There is not enough liquidity in a selling market,” an institutional broker said.

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