Fund managers may be in risk-on mode globally given the abundance of liquidity, but recent political events in India, as also the lack of fundamental triggers, seem to be making them more cautious about investing here. Foreign institutional investors (FIIs) who were snapping up Indian stocks in September have made more modest purchases in October, and that too is falling with each passing week.
From inflows of $3,845 million in September, FII flows were $1,163 million in the week ending October 5, $654 million in the week ending October 12 and a mere $68 million in the week ending October 19. The 30-share benchmark Sensex has lost 145 points in these two weeks.
This is a stark contrast to amount that FIIs bought in the previous four weeks, when on average they picked up $1.4 billion each worth of stocks. Much of this came after the government unleashed reform measures including a hike in diesel prices and announcing foreign direct investment in multi-brand retail and civil aviation sectors.
The rupee, meanwhile, is back at levels of close to 53.5 against the dollar ? at 55.5 to the dollar at the beginning of September when FII flows started picking up, the rupee appreciated all the way up to 51.745 on October 4 when flows were still strong. After that, it has been dropping steadily with a fall in FII flows ? in the space of 18 days, the rupee depreciated 3.3%.
On Friday, the currency dropped to levels of 54.01 intra-day due to dollar purchases by oil importers and by the government for defence payments.
The euro too slipped indicating weak risk appetite which spurred banks to buy dollars back home.
In September, FIIs bought a net $3.8 billion worth of equities but market players believe the flows may not be as strong this month. Some of this, they believe could be attributed to the political situation following a series of allegations against politicians as also people perceived as close to the powers that be. However, some market observers believe that more than the scams, it is the absence of any catalyst ? in terms of earning surprises ? that has left the sentiment somewhat subdued.
Said Motilal Oswal, CMD, Motilal Oswal Financial Services: ?Scam allegations definitely put the government on the backfoot as a lot of efforts go into fighting these charges and defending their stance. They also may be pushed to take some populist measures to lighten the negativity created, which is not a healthy sign.?
Not all agree though. ?There has been a lot of buzz around the corruption issue in India in the last two years. Recent developments, however, have not impacted investment sentiment signficantly, ? says Andrew Holland, CEO- investment advisory, Ambit Capital. ?Restrained market activity in the last two weeks resonates with the global markets, which are also facing consolidation ahead of major events like the European summit and impending US presidential elections, ? added Holland.
B Gopakumar, head of broking with Kotak Securities adds that had FIIs been overly concerned with the latest corruption charges, it would have resulted in substantial selling in the equities market. ?The recent events are more of a build-up for the 2014 elections. Market sentiment is not significantly affected by these.? Gopakumar believes that after the last month?s market rally of about 6.5%, there has been some profit-booking which had impacted markets, including the performance of the benchmark indices, market volumes and FII buying. The market is awaiting Reserve Bank of India?s decision on policy rates, due end of October, to get an indication whether the central bank would give in to expectations of the government and corporate India in terms of a rate cut.