FIIs pull out $727 million in May-long selling spree

This is the first time in a year that FIIs have been continuously selling in the country for two weeks. Except for two days in the beginning of May, FIIs were sellers on all other days.

The reasons seem to have been political uncertainties, the defeat of the NDA government and the support of Left parties in the incoming government.

According to market circles, foreign funds are strictly against the idea of going back on reforms. However, Prime Minister-designate Manmohan Singh has already said no to privatisation of key public sector units (PSUs) and banks.

FIIs had invested $3.611 billion (Rs 16,509 crore) in India in calendar year 2004. The amount they pulled out in May is not very significant, but if the trend continues the outflow will soon gather momentum.

On Monday — the day the index plunged by a whopping 564 points — many blamed foreign funds and local mutual funds for precipitating the crash. This, again, may only be partially true.

Net outflow by foreign funds was only Rs 63.60 crore ($ 14.5 million) that day, which is negligible compared to the record plunge in market capitalisation by Rs 1,33,000 crore.

‘‘The markets rallied over the past two days on the news that Singh was to become PM. This news has now been discounted in the market, which is waiting for the new finance minister with bated breath,” said Andrew Holland of DSP Merill Lynch.