The Hindu Business Line : FIIs may set the market direction

Having local investors charged up for the mid- and small-cap stocks, Dalal Street this week seems to be looking up to FIIs to set direction for the movement in the benchmark index. The overseas fund managers, now active in India, also appear to have worked out their short - medium term strategies.

Indications are that this quarter they may selectively expand their portfolios into a few under-invested sectors or stocks in the mid-cap space.

Not surprisingly, more and more overseas fund houses, as newer country-specific research reports suggest, are not only taking a low-down view on the domestic corporate performances, but also trying to fathom the dynamics of the economy, social and political milieu.

Last week, as anticipated in these columns, a bout of profit taking and portfolio reshuffle took place on a moderate scale as an aftermath of quarterly corporate results. This process may continue this week too. But the process of factoring in the future earnings growth in the heavyweights may pan out in the next few weeks.

The total outstanding in the derivative segment is likely to cross Rs 50,000 crore this week causing short-term rise in volatility. But the overall equanimity of the market is unlikely to be disturbed by such event.

Bankable bet

Apart from IT counters, the Indian banking stocks are getting worldwide attention of late. According to Moody's Indian banks in the last three years have recorded the highest return on equity among all banks in the Asia and Pacific Rim region including ones from Singapore, Japan, Australia and the New Zealand.

Overseas investors have discovered that the average NPA level of the Chinese banks at the end of 2005 was 8.9 per cent while Indian bank's current aggregate NPA level is of 3.84 per cent. The investment strategists reckon two of India's top private banks' - HDFC Bank and ICICI Bank - present NPA levels at 0.24 per cent and 1.65 per cent respectively as more than respectable.

So if the Indian banking stocks such as HDFC Bank and ICICI Bank appear a little too expensive, even against the North American banks such as Bank of America and Wells Fargo Bank, the foreign investors seem to be ready to pay for it.

Pharmaceuticals, construction and engineering stocks are also in investment focus of many newcomers. Another recent notable development is that increasingly global equity-cum-portfolio investors are getting well entrenched in the growing list of mid sized manufacturing companies.

On the contrary, the hedge funds, which were hyper active in fuelling the momentum till mid-May 2006, are still relatively subdued in activity.

In the intervening period till end of the calendar year, many of the India funds may increase their presence in the local stocks. This period is also likely to see a number of first timers making actual entries into Indian equities.

The new year may see the likes of Warren Buffet and a new set of top notch pension funds finally lowering anchors on Dalal Street.

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