The subprime mortgage crisis is beginning to take its toll on the domestic equity market. It has already started impacting the foreign funds flow into the equity market in the recent past.
According to the data available with Sebi, the participation of foreign institutional investors (FIIs) has declined drastically whereas liquidity support from the domestic mutual funds (MFs) has gone up sharply in the Bombay Stock Exchange?s (BSE) Sensex journey from the 20,000 points on October 29 to 21,000 points on January 8 on an intra-day basis. The FIIs, which were considered hitherto the main drivers of the Indian markets, have slowed down their investment with a net investment of Rs 3,043 crore compared to Rs 5,810 crore by domestic MFs in 49 trading sessions during this period. Another interesting apsect witnessed during the period was that Indian MFs were also net buyers when their foreign counterparts were buying, which is in contrast to their strategy as they usually sell when FIIs are buying from the market.
The Sensex touched 21,000 points in the intra-day trade to close at 20,873 points at the end of Tuesday?s session.
The market experts are citing the sub-prime crisis as the main reason for the slowdown of foreign fund flow.