The pull-out by foreign funds that started with the global credit market crisis earlier this year has now gathered momentum. With inflation shooting up, FII sales have also increased — they have pulled out a whopping $ 5.66 billion from Indian markets in 2008 so far and more are waiting in the wings to dump Indian stocks.
FII shareholding in 34 out of 50 key shares that constitute the S&P Nifty Index has fallen significantly during the quarter ended March 2008. “This figure is expected to come down further in the first quarter (April-June 2008) of 2008-09 as FII selling has intensified in the last two months,” said an official of a domestic mutual fund. As per Sebi figures, $ 1.85 billion was pulled out by foreign funds in June alone. This comes after $1.24 billion withdrawals in May.
If there’s demand resistance in the economy and a lower corporate earnings forecast as a result of monetary tightening by the RBI, FIIs could press sales further.
Warned an analyst from HSBC, “there is reason for caution; the rise in input prices may pressure margins and earnings growth, in the short term. Upcoming elections may also keep the markets nervous and constrain upside in markets. The Indian markets may not outperform peers until the elections are completed by May next year.”
Foreign hedge funds, which invested heavily in India last year, were leading the sellers bandwagon. In fact, hedge funds had lost appetite of Indian markets ever since the Sebi put curbs on participatory notes (PNS) late last year.