Mumbai, Aug. 6: Foreign institutional investors (FIIs), who pumped in $24 billion into Indian equities in 2012 and in excess of $12 billion so far this calendar year, seem to be in a wait-and-watch mode as they expect more action from the government and are waiting for the rupee crisis to play out.
An indication of their cautious stand was the provisional data from stock exchanges that showed FIIs made net purchases to the tune of only Rs 212 crore today, despite the benchmark index sinking nearly 450 points. Market experts say this has been typical FII behaviour in recent times, despite conditions such as lower economic growth in this fiscal and a falling rupee.
“They have not turned their backs on the equity markets, but at the same time, they are also not gung-ho,’’ an analyst with a domestic brokerage, who did not wish to be identified, said.
Speaking to The Telegraph, Alex Mathews, head-research of Geojit BNP Paribas Financial Services, said FIIs had become cautious investors. “They have not been very aggressive,’’ he said. According to Mathews, the foreign investors are unlikely to change this stance as they await the developments to play out.
Observers said this could include the rupee devaluation, the slowdown in the domestic economy and the upcoming elections in five states this year and for the next central government in 2014. Optimists feel FIIs may not exit in a knee-jerk fashion (in equities) in the event of a tapering in the US Federal Reserve’s bond purchase programme.
Data from the Securities and Exchange Board of India show that FIIs have been net buyers in stocks to the tune of $172 million, or Rs 1,049, crore so far this month. However, they were net sellers to the tune of $1.01 billion (Rs 6,086 crore) last month.
Stock exchange sources say that with the prospects of an interest rate reduction looking unlikely this fiscal, the FIIs have increased their exposure to pharmaceuticals and IT services, while trimming their exposure to banks. For the stock market, however, experts are predicting a bounceback or a relief rally in a day or two. “The markets is in an over-sold territory. An imminent recovery is on the cards according to technical charts,’’ Mathews said.
Some feel the appointment of Raghuram Rajan as the next governor of the RBI could lead to stock values rallying tomorrow, though the sentiment could be hurt in the event of a hike in the cash reserve ratio or any other measure by the apex bank.
Stock market circles here point out that with the rupee movement playing a key role in determining the direction in Dalal Street, any actions taken by the government to improve inflows and thereby stem depreciation of the rupee could prove beneficial to equities.