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GEORGE MATHEW
MUMBAI, OCT 31: When everything was going in favour of the stock market, the slide began. A stable government is in place at the Centre, pending economic bills are being cleared one after another and economic growth is picking up. But the smooth run of Dalal Street bulls has hit year-end roadblocks. Market movers foreign institutional investors (FIIs) are now leading the bear band-wagon.
While the FIIs are selling stocks as part of the year-end exercise of closing accounts and Y2K millennium bug fears, domestic operators have also joined the party with `stop-loss' sales. The expected FII selling spree which started in August continued in September and October as well. While FIIs made net sales of $ 28.2 million in August, this figure increased to $ 170.4 mn (Rs 740 crore) in September and touched $139 million in October (Rs 607 crore). ``FII sales are common in the last two months of the calendar year. This happens all over the world... it's not unique here,'' said an analyst.
The main worry is that thisyear FIIs started their year-end book adjustment little early. There are two more months left for FIIs to adjust the books and show good returns. What upset the domestic bulls was that FII sales recharged bears who were in a parlous position when the Bombay Stock Exchange Sensex touched the all-time high of 5150 on October 11, 1999. Since then Sensex has fallen 716 points to 4444.56 on October 29. This means a fall of nearly Rs 99,000 crore in market capitalisation (total value of all listed shares) from Rs 7,25,000 crore.
The selling exercise by FIIs is expected to continue in view of the fast approaching year 2000 (Y2K). ``There are still fears that computers in emerging markets like India will fail on January 1, 2000. Obviously nobody wants to take a chance despite the assurances of the government. Nobody has a clear idea how the computers will behave in the new year. Several foreign experts have warned investors about the slow pace in rectifying computer systems in developing markets,'' said BSE dealerBV Shah. ``Wary investors are moving money out of Asian countries seen as ill-prepared for the Y2K millennium bug,'' Warburg Dillon Read said, adding, ``clearly funds are moving out of India, Indonesia, Thailand and China on account of Y2K.'' An analyst with an FII operating in India, who preferred anonymity, confirmed the development saying that funds are now being diverted to countries like Singapore and Hong Kong. Many Asian markets gained last week; Tokyo and Hong Kong rose three per cent on last Friday when Sensex lost 150 points. Dow Jones of Wall Street gained 2.19 per cent.
However, an official of Jardine Fleming went on record ruling out FII selling pressure as the reason for the Sensex crash. His theory is that domestic operators had built up huge outstanding positions ahead of the installation of the new government at the Centre. This huge position is being unloaded in the market, setting off a selling wave. Another school of thought has it that FIIs are pulling down the prices to start buying atlower levels before the next bull rally.
The behaviour of FIIs has clearly confused many operators. When the previous Vajpayee government failed in the vote of confidence and political uncertainty ruled the roost, FIIs invested heavily. In fact, their net investment in April was $ 223 million (Rs 953 crore) and in May $ 402 million (Rs 1719 crore). This was the time when economic bills were blocked, policy decisions were stuck and the country was facing elections.
BSE president Anand Rathi, who is getting ready for derivatives trading, is optimistic about the future of the market and reforms. ``The markets are safe. We've collected adequate margins,'' Rathi said, looking at the falling indices.
But analysts expect the FIIs to come back to the Indian market in January. Considering the pace of reforms, economic growth and stable government, many expect FIIs to allocate more funds for India.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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