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Two-way traffic in FII overdrive

Mumbai, Jan. 12: Foreign institutional investors (FIIs) who helped hoist markets so high, so fast are churning their basket of shares at a feverish pace. So, the surge in their volume of transactions to a new record also brings into focus a less noticed fact of life — they are selling almost as heavily as they are buying.

Figures on the pattern of their funds-play in 2003-04 rally throw up an interesting trend. Gross transactions (purchases and sales) have leapfrogged to levels never witnessed in the history of Indian stock markets. But, it is the rapid-fire sales that have left market pundits scratching their heads on the endgame.

Since January 6, gross transactions have crossed the Rs 1000-crore mark; it’s been rising steadily since then.

Last Friday, on January 9, gross transactions (combined purchases and sales) hit Rs 2000 crore. The day saw their purchases at a mind-boggling Rs 1447.9 crore, while sales were close to Rs 1000 crore, at Rs 998.80 crore; gross transactions at Rs 2446.7 crore were a record.

FIIs have been selling heavily in some stocks, but their purchases, so far, more than offset sales, bringing relief to the market. “Net FII inflows do not tell too much of the activity, nor do the figures establish a trend,” said Jamshed Desai, head of equity research at Taib Securities, a prominent FII brokerage.

The tremendous churn since the start of the new year in FII portfolios seems to be due to the voracious appetite for Indian stocks. This is, in large part, an extension of the trend that started last year. But the catch lies in the selling spree seen over the past few days. This is a break from the past, when it was buying all the way.

The spurt in deals of FIIs, who cannot buy and sell without taking deliveries, does not emanate from trading, says a dealer affiliated to an institutional brokerage. Either, they are booking profits and scooping up new shares, or a section of them is cashing in while another is entering the rally they missed out earlier.

Much to the relief of markets, their net positions are positive since the value of buying has outweighed sales.

These funds, seen as the driving forces behind the 73 per cent spike in the BSE sensex last year, almost yanked local stock exchanges from the depths to a position where it is the second-highest gainer in Asian markets.

The bull rally that started in May 2003, when FIIs hotfooted into the country, ended with their total net investments during the year at a staggering Rs 35,153 crore.

There are 517 FIIs registered in the country and many others who put their money through participatory notes, where the real investor is not known. At least two India equity funds, the Pictet Fund Indian Equity Fund and the HSBC GIF Indian Equity Fund, were flush with $127 million, a report said.

With elections close, it is anybody’s guess how foreign investors will behave, though they are wary of uncertainties. But the sense is that they would book profits in some of their portfolio, having invested when share prices were ruling, in some cases, at 52-week lows. At the same time, they are ones who believe in the India story, and will be here for a long time, say analysts.

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