Foreign Institutional Investors (FIIs) have turned net sellers of Indian shares in the January-March quarter for the first time ever since the beginning of the biggest bull-run in the country's stock market histroy.
With the sub-prime crisis that broke out in the US in May 2007 snowballing into one of the biggest financial disasters in the global economy, equity markets across the world have slid down from their peaks. And its repercussions are being felt by Indian investors too.
The Bombay Stock Exchange's 30-share Sensex closed at 15,791 points on Wednesday, five times higher than the 2,900-level of May 2003 when the current rally began. But it's down 24 per cent from an all-time high of 20,873 recorded on January 8, 2008, largely because of sustained selling by foreign funds.
In the January-March quarter, FIIs have pulled out close to $3 billion (Rs 12,000 crore) out of the total $63.5 billion (Rs 272,000 crore) invested in Indian markets, shows data released by capital markets regulator Securities and Exchange Board of India (Sebi) on Wednesday. This is for the first time that the FIIs have turned net sellers in the fourth quarter of any financial year or the first three months of any calendar year since 2003.
"This comes at a time when the global markets have been hit by one of the biggest financial crises,” said Andrew Holland, managing director, Merrill Lynch (India). “At such times you protect your capital. Then wait and watch what happens, identify the future growth areas.”
Holland felt FIIs would return to buy into the India growth story as soon as the dust settles down as the country's fast-paced growth rate is luring. "They have nowhere else to go other than return to emerging markets like India, once things get better.”
Though FIIs have sold only around 4.7 per cent of their total investments, what causes worry to several market experts is the fact that equities are available cheaper in other markets, including the developed ones like the US.
"Indian equities, even if we compare them to those in the US look expensive,” said Madhusudan Sarda, director, Mehta Equities. “For example, while shares of a big bank like the Citibank are available at two times its book value in US markets, several banking shares back home are valued at 5-4 times their book value.”
Meanwhile, a clutch of brokerage houses have downgraded India Inc's earnings estimate for the fiscal 2008-2009.
While brokerage house Religare reduced earnings per share estimate of the Sensex for financial year (FY) 2008 and FY 2009 by 2.6 per cent and 3.6 per cent to Rs 852 and Rs 1,021 respectively, another broking firm, Prabhudas Lilladhar, said in its quarterly preview, that growth could be modest.
"After having scaled 22.2 per cent year-on-year growth in third quarter of FY 2008, net profit growth of companies under our coverage could drop to a more modest 18.3 per cent. This excludes companies like ONGC in the oil and gas sector.
FII investments in domestic stock markets had hit an all-time high of $17.2 billion (Rs 714,000 crore) in 2007.