You may either love them or hate them but you can't ignore them. Foreign institutional investment (FII) is crucial to Indian stock market and going by what we observe in the current market scenario they could almost decide the course of Indian equity market
There were days when a piece of news about foreign institutional investors' (FII) interest in any counter could spread frenzy and its price could zoom past all its historical levels. This has been happening for more than a decade. Any scrip that had invited FII interest would soon
become the darling of the operators and investors. Therefore, it is no exaggeration to
claim that FIIs determined the course of the market direction for such a long time. As a
result the market has seen counters zipping through new highs and investors pocketing
handsome profits in the past few years. As of March 2008, FIIs have invested about Rs 6
lakh crore in various companies and the stake of these institutions is more than 20
per cent individually. But what we have been seeing in the recent past in the market has remarkably changed the perception and the decade long boon has almost become the biggest curse for Indian stocks riding on FII. To be fair, we can't blame the FIIs for their pull out
because they are forced to save their interest by exiting from the emerging markets so as to give support to their crippled parental counterpart in the US. This is the main reason for their exit
from India. The quantum of the sellout can be gauged from the fact that in the first fortnight
of March alone FIIs sold shares worth Rs 1762.10 crore and in 2008 they have sold
Rs 13064.60 crore, which is just 18 per centof the total investment of Rs 71486.50 crore
made by them in 2007.
What we see in Indian stock market, to a certain extent, is the aftermath of the US
slowdown and the crackdown in the financial sector in the US. This has led to an
unprecedented crisis globally which made FII investments in India vulnerable.
Therefore, shares having more FII investments were more prone to the freefall in the
recent crash in the capital markets than the isolated stocks. We have seen this on March
17 in the case of Orchid Chemicals and Pharmaceuticals. The stock tumbled 39.09
per cent on a single day on account of a selling spree by a major institution (rumor is
that it was the crippled financial institution Bear Stearns) together with margin call on a
particular portion of the promoters stock which was funded. This was followed by S
Kumars Nationwide, which went down by 21 per cent on March 24 based on rumors
that an off load by FII in a block deal of 12 lakhs shares. The share was trading at Rs
154 and came down crashing to Rs 83.70. However, the management denied any
involvement in the form of margin call selling pressure and the news of Bear Stearns
selling spree. On the FII part, Bear Stearns holds 59 lakh shares of the company which
works out to be 2.92 per cent of the total stake and it was reported that the management
doesn't hold any direct investment in S Kumars and the investment is in the form
of P-Note form only. There is also an interesting fact that in S Kumars FII holding is
to the tune of 40 per cent, which makes it more vulnerable to global pressures.
These are only few examples; but they portray the alarming situation that engulfs the
Indian capital market. This could just be the tip of the iceberg.
There were days when a piece of news about foreign institutional investors' (FII) interest in any counter could spread frenzy and its price could zoom past all its historical levels. This has been happening for more than a decade. Any scrip that had invited FII interest would soon
become the darling of the operators and investors. Therefore, it is no exaggeration to
claim that FIIs determined the course of the market direction for such a long time. As a
result the market has seen counters zipping through new highs and investors pocketing
handsome profits in the past few years. As of March 2008, FIIs have invested about Rs 6
lakh crore in various companies and the stake of these institutions is more than 20
per cent individually. But what we have been seeing in the recent past in the market has remarkably changed the perception and the decade long boon has almost become the biggest curse for Indian stocks riding on FII. To be fair, we can't blame the FIIs for their pull out
because they are forced to save their interest by exiting from the emerging markets so as to give support to their crippled parental counterpart in the US. This is the main reason for their exit
from India. The quantum of the sellout can be gauged from the fact that in the first fortnight
of March alone FIIs sold shares worth Rs 1762.10 crore and in 2008 they have sold
Rs 13064.60 crore, which is just 18 per centof the total investment of Rs 71486.50 crore
made by them in 2007.
What we see in Indian stock market, to a certain extent, is the aftermath of the US
slowdown and the crackdown in the financial sector in the US. This has led to an
unprecedented crisis globally which made FII investments in India vulnerable.
Therefore, shares having more FII investments were more prone to the freefall in the
recent crash in the capital markets than the isolated stocks. We have seen this on March
17 in the case of Orchid Chemicals and Pharmaceuticals. The stock tumbled 39.09
per cent on a single day on account of a selling spree by a major institution (rumor is
that it was the crippled financial institution Bear Stearns) together with margin call on a
particular portion of the promoters stock which was funded. This was followed by S
Kumars Nationwide, which went down by 21 per cent on March 24 based on rumors
that an off load by FII in a block deal of 12 lakhs shares. The share was trading at Rs
154 and came down crashing to Rs 83.70. However, the management denied any
involvement in the form of margin call selling pressure and the news of Bear Stearns
selling spree. On the FII part, Bear Stearns holds 59 lakh shares of the company which
works out to be 2.92 per cent of the total stake and it was reported that the management
doesn't hold any direct investment in S Kumars and the investment is in the form
of P-Note form only. There is also an interesting fact that in S Kumars FII holding is
to the tune of 40 per cent, which makes it more vulnerable to global pressures.
These are only few examples; but they portray the alarming situation that engulfs the
Indian capital market. This could just be the tip of the iceberg.
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