FIIs pull off $6.5 bn despite Fed cut
If the current trend is any indication, the FIIs are expected to slow down their investment spree, at least until clouds are clear in the US, reports Arun Kumar.business Updated: Jan 27, 2008 23:20 IST
The last time the US cut its benchmark interest rates, capital flows to Indian stocks surged, fuelling a hesitant bull run. But it proved to be a different call this month, as the US recession stared into a recession as Wall Street’s banks spent time studying the red ink on their accounts.
Unlike September 2007, when the Fed triggered flows to India with a 0.5 percentage point cut in rates, a cut of 0.75 points on January 22 to 3.5 per cent did not turn the tide. Foreign institutional investors (FIIs) continued their selling pressure.
Between September 17 and October 31, FIIs had pumped in $5.8 billion into Indian bourses. In November, the net inflows were negligible.
Last week, the money took flight in the opposite direction. Since January 16, FIIs have made net sales of around Rs 26,000 crore — or $ 6.5 billion. If the current trend is any indication, the FIIs are expected to slow down their investment spree, at least until clouds are clear in the US, where capital-hungry banks and uncertainties over consumer spending are hitting prospects of economic growth.
After the second round of news that many of the global financial behemoths are still reeling under the sub-prime crisis spawned by reckless lending of home loans to unworthy borrowers, the FIIs turned desperate sellers across emerging markets.
Caution turned to deep worries earlier this month after reported news of massive write-off by the leading financial power-house such as Citigroup, Merrill Lynch, and other giants. “It would be difficult to predict the trend, but investment decision are going to be influenced on what is happening in the US,” said Amitabh Chakraborty, president and head of equities of Religare Securities. “The key issue is -- what is the size of the US crisis?. It is yet not quantified while many banks have done massive write off and the process is still on,” he added.Fund managers have their fingers crossed.
“Many of the big ticket FIIs, who have huge exposures under proprietary accounts as well as the client headings, are under the selling pressures as redemption pressures is mounting in their home countries,” said a fund manager at a leading FII, asking not to be identified.
While investors remain bullish on India’s long-term prospects, the fact that US is still the world’s biggest economy is bound to cause some slowdown here, said a venture capitalist associated with a US giant.