Exit mode

Mumbai, May 17: Market analysts have always been wary of the fickle behaviour of foreign institutional investors (FIIs).

While investors have been applauding the confidence reposed by FIIs since April 2003, they are suddenly changing their view on India and other Asian markets and have started selling heavily.

Hedge funds did most of the selling, brokers said. The Securities and Exchange Board of India (Sebi) had earlier legalised the use of participatory notes which allowed foreign investors not to disclose their identity while investing in the country.

Hedge funds are private investment funds run by celebrity investors who try to make more money than other investment funds by using borrowed money to maximise returns on certain opportunities that their expertise leads them to spot first. They exit as quickly as they enter and at times disturb the equilibrium of the markets as George Soros did by going short on the pound sterling that even embarrassed the Bank of England.

Hedge funds are suddenly finding their home-grounds more attractive. They are exiting Asian markets as growth in China has slowed down.

Foreign investors, including Marc Faber, have been saying that the markets are overheated.

The FIIs sold a record sum of Rs 2,627.90 crore in this month, the highest-ever amount since April 2003, when it started its bulge-bracket buying on the Indian markets.

Last week, it sold to the tune of Rs 504.40 crore on Friday against Rs 604.40 crore on Thursday. It is feared that the Monday figure would see a higher amount as some FIIs look at selling seriously.

But this is still a pittance, as FIIs have invested a record sum of Rs 17,023.80 crore in calendar year 2004.

The overall investment by the FIIs is a record sum of Rs 1,11,126.30 crore and most of it brokers say were done at high prices. Shareholder wealth worth Rs 3,00,000 crore was eroded and a reasonable surmise is that the recent FII entrants would have lost a lot of money, said dealers.

The FIIs who have been short-term investors would have lost heavily in today’s market scenario,” a dealer affiliated to a foreign broking outfit said.

They were given huge allotments in the Oil and Natural Gas Corporation (ONGC), Gail, IPCL and IBP public offerings and most of the shares are 15 to 20 per cent below the issue price, market analysts said.

These allotments were preferential in nature which left many Indian fund houses dissatisfied. Today, they would be glad that they did not buy the same shares at higher prices, analysts said.

There are 542 registered FIIs and many who use the participatory notes route to invest in the country.