The Hindu Business Line : European FIIs pick up US funds selling

Mumbai, Sept. 24 It appears that while US-based financial institutions have been selling Indian equities, a large proportion of what they are offloading is being picked up by non-US-based financial institutions, as recent bulk deal data indicates.

In September, which has seen Wall Street in financial turmoil, major investment banks such as Morgan Stanley, Goldman Sachs, and Merrill Lynch sold, through their FII units, a large quantity of stocks in the country.

While these banks were on a selling spree here, non-US based firms such as Deutsche Securities, Swiss Finance Corporation, Switzerland-based Credit Suisse, and some UK based firms were largely buying, according to data on bulk deals on the exchanges.

Some FIIs, which are in good shape and still want to stay invested in India, find these deals comparatively cheaper, said Ms Anita Gandhi, Head of Institutional Business, Arihant Capital Market Services.

According to the data on BSE, while FIIs had bought equities of Rs 48,109.47 crore, they sold equities worth Rs 57,961.61 crore in September.

Book adjustments

The selling is happening as some of the US-based FIIs will have to make adjustments in their books according to the revised guidelines by the Federal Reserve, which has bailed them out, said the head of research of a mutual fund house having a global presence.

At current levels, these stocks are very attractive and so the FIIs, who are still not affected so much by the current financial crisis in Wall Street were investing in them, said Mr Arindam Ghosh, Chief Executive Officer, Mirae Asset Global Investment Mangement (India) Pvt Ltd.

In September, Morgan Stanley has sold shares of NDTV Ltd, Phoenix Mills, Adhunik Metals, Nagarjuna Fertilizer, K S Oils, Ruchi Soya, Voltas Ltd, Educomp Solution, NIIT Ltd, Reliance Capital, Suzlon Energy Ltd among others.

Goldman Sachs has sold Madras Cement, SRF Ltd, Dhampur Sugar Mills, Educomp Solutions Ltd, ICSA among others.

Merrill Lynch has sold shares of Tulip Telecom, Balkrishna Industries, Gammon Infrastructure, United Spirits Ltd, Goldstone Technologies, Dhampur Sugar Mills among others.

Different channel

If these FIIs were to sell their investments in the open market (and not through bulk deals), they will get a very low value. Also, if they went in for open market transactions, the value of their left over portfolio will also erode as markets will start falling due to panic selling, said Mr Vishwas Agarwal, independent analyst.

According to a fund manager, decreasing interest from US-based firms does not mean that the money is now coming from a different geography, it is just that the underlying investors or groups (which could be the same), which are shifting to a different channel (a different FII).

It might be the same clients now investing through a different P-Note (FII), which means a transfer of clients to a different investment bank, mostly based in Europe or Hong Kong based ones, he added.

Participatory notes are instruments used by foreign funds which are not registered in India, for trading in the domestic market.

According to SEBI data, 28 new FIIs have registered in September so far and 121 sub-accounts were added.

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