Drop In FII Inflows Pares Sensex Gains

Updated: Nov 9 2003, 05:30am hrs
Profit booking in index heavyweights towards the fag end of the week shadowed the earlier strong rally. The Sensex lost 76 points on Friday, ending the week on a poor note.

However, thanks to smart gains at the beginning of the week, both the BSE Sensex and the NSE Nifty managed to end with gains. The BSE Sensex gained 64.70 points for the week at 4,971.57, whereas the broader S&P CNX Nifty index gained 36.15 points at 1,592.05.

According to dealers, selling pressure from institutions, liquidation of positions by traders with exchanges raising margins, weakness in the Asian markets, slowdown in FII inflows and general profit taking caused a sell-off in the market during the latter part of the week.

In a sharp and swift rally, the BSE Sensex surged 390.04 points, or 8.2 per cent, in just five trading sessions to a 43-month high of 5,097.84 on November 4, 2003. However, it pared some of those gains during the last three trading sessions, when the Sensex shed 126 points.

As per dealers, local mutual funds are booking profits whereas there are signs of slowdown in FII inflows. With stiff margins of 50 per cent plus in the derivatives market, a fall in the market may have a cascading effect, as outstanding positions are large. Local funds pulled out a substantial Rs 227 crore in just two trading sessions between November 5 and 6, 2003.

Fundamentals of the market remain strong due to the upbeat corporate performance, revival of the economy on the back of a good monsoon, low interest rates, and the strengthening of local currency, said market experts.

During the week, The National Stock Exchange (NSE) stepped up risk management on the bourses. The measures include a reduction in the exposure limit of 48 securities by 20 per cent in the cash market, a reduction in the intra-day trading limit of brokers, and an upward revision of exposure margins in 38 stocks in the F&O segment. The measures will take effect from November 10, 2003. As per the market authorities, these measures are being taken to reduce speculation which cause volatility in the market.

With blue-chip stocks witnessing profit taking, a part of the money has shifted to side counters, informed dealers. Hectic activity is being witnessed in a host of small and mid-cap stocks across sectors like shipping, steel, cement, paper, media, power and pharmaceuticals. The hectic activity in side counters is being attributed to the stepping up activity by operators, who usually focus on second-line stocks.

Bank shares like State Bank of India, ICICI Bank, Punjab National Bank, Canara Bank, Oriental Bank of Commerce lost ground after the RBI kept bank rates and repo rates unchanged in its credit policy announced on Monday, belying the market expectations of a cut.