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Journalism of Courage
The big bulls have become silent. After a 8216;scintillating8217; performance last year, the power and presence of foreign institutional investors seem to have waned in the Indian market this year. They are no longer leading any bull runs in the market, and their inflows have fallen steeply.
In the first seven months January-July of the current year, FIIs have brought in only Rs 2,670.7 crore. This is nowhere near the inflows of Rs 13,292.7 crore recorded in 2001. Inflows have fallen further in August and September, raising concerns. 8216;At this level, it8217;s doubtful whether FII inflows in 2002 will come to even one-third of last year. This is certainly the worst year after 1998 when FIIs pulled out funds after the nuclear explosion and downgrading by global agencies,8217; said an official source.
8220;The positive FII inflows into the equity markets in spite of the negative sentiment indicates that global fund managers find value in Indian markets. We feel the market fall has been primarily due to domestic institutional selling and fears of operators being over-extended,8221; said an analyst with Pioneer ITI which was taken over by Templeton.
His assessment may not be totally off the mark. Badly battered Unit Trust of India was a major seller of stocks in the last a few months. 8216;The stock market got off to a reasonable start in the financial year April 2002. However, the idyll was jolted by the dramatic increase in tensions between India and Pakistan8230;.. while FII flows diminished, there was fire sale or liquidation suggesting large-scale panic,8217; writes S. Naganath, joint president and chief investment officer, DSP Merrill Lynch, in its monthly newsletter to investors.
Major global investment firms have cut down their equity exposure after the US attacks last year. Wall Street had since then fallen steeply and is yet to recover as a series of corporate frauds affected the investor sentiment.
Last year8217;s stock scam had brought out the darker side of FII operations in India. Sebi8217;s preliminary investigation report had found that certain sub-accounts of FIIs were predominantly transacting in the favourite stocks of disgraced big-bull Ketan Parekh. In addition some OCBs overseas corporate bodies had even made huge investments in stock market which were much more than their capital and Sebi found that there were huge remittance by these OCBs. The market regulator had also found that the participatory notes issued by FIIs were also heavily misused by the FIIs.
According to a Sebi report, investigations into OCBs indicated several deficiencies, violations such as entering into synchronised deals, deliveries of shares purchased not being taken by the OCBs and FII account-holders and occasionally providing short-term funds against the securities of the shares, violating takeover code and RBI guidelines. The Sebi report indicated that around Rs 3,800 crore worth of funds were withdrawn by these entities after the scam. A number of OCBs were set up by promoters of some of the leading Indian companies. Sebi report indicates that entities belonging to Ketan Parekh had misused the FII sub-accounts and OCBs for market manipulation, circular trading and issue of PNs.
8216;Such a big scale of manipulation may explain the huge FII activity in 2000-01. Now that these loopholes have been plugged, there is not much scope for manipulation,8217; market sources said. 8216;In a way this is good8230; only genuine investment will take place now. We should not be just looking at high numbers on inflows. There should be a healthy growth in the market8230; the depth and liquidity in the market should increase,8217; Podar said.
There8217;s a general perception that FII money is 8216;hot money8217; which is highly unreliable and that FIIs would be the first to exit in times of trouble. But the fact remains that even this money flow is now slowing down a la reforms.
