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Since 1st March, 1999
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Monday magic dispels myth FIIs stay put, mutuals sell out

Mumbai, Feb. 6: The sensex has touched 10,000 ' and it’s time for some myth busting.

There’s a popular perception swirling around the stock markets that foreign institutional investors (FIIs) are tired of India after the 40 per cent humdinger returns that the sensex provided in calendar 2005 and they are ready to scoop up the money and scoot. And just when they are about to do so, the mutual funds have emerged as saviours of the market by shovelling stacks of cash into stocks.

A small, influential cabal of FIIs has gone round saying that the stock markets in India are due for a massive correction. It's a bearish view that doesn't appear to be shared by foreign fund managers who have continued to buy into the India story attracted by its robust economic growth of over 7.5 per cent and sparkling corporate numbers in the last three quarters.

A close look at the statistics will dispel the notion that the FIIs are getting ready to pull out. The trading activity figures provided by the Securities and Exchange Board of India (Sebi) for December 2005, the month which has traditionally seen outflows of FII funds, show highest net investment for the year at Rs 9,465.20 crore.

In contrast, mutual funds, the vehicle for retail investors, made net sales of Rs 1,376.73 crore during the month.

It’s a refrain that has been heard in January as well: FIIs made net purchases of Rs 3,220.70 crore, while the mutual funds were net sellers at Rs 1,172.29 crore.

Is the retail investor still sitting on the fence and watching this fabulous bull run with a bemused expression'

Market watchers say, “While there have been inflows into the new funds, there have been redemptions from the existing funds also due to the rampant churning that takes place in the mutual fund industry.”

“Also, the retail investors who have chosen to participate directly in the markets would have preferred the mid cap and small-cap stocks. The recent rally has mostly been fuelled by the heavy weights, which have mostly seen increased investment from the FIIs,” they added.

However, Sanjay Sinha, head (equities), SBI Mutual Fund, which has collected close to a whopping Rs 3,000 crore in its latest new fund offer says, “There is definitely a healthy retail participation in the stock market run as is evident by the Rs 8,000 to 10,000 crore collected by the mutual fund offers in the last one month. While there have been some redemptions from the existing schemes, the inflows by far exceeds the outflow.”

“However, contrary to the earlier bull run, this time the investors seem to have chosen the mutual fund route rather than investing directly in the market,” he added.

Despite such huge inflows, why are the mutual funds net sellers in the stock market'

“At such high levels, fund managers take a cautious view of the market and many of them would have preferred to book profits and moved into cash to counter the volatility witnessed by the markets,” Sinha said. The coming months should see the mutual funds making net purchases in the market, however, it would be in a bottom up fashion and selective stock picking,” said Sinha.

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