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Dalal Street analysts are weighing the views of foreign institutional investors with utmost care.
Though FIIs always command higher respect among brokers and investors as their move can swing markets both ways, this time around one can sense a fear on Dalal Street. This is because FII holding in Indian equities is at an all-time high.
A Citigroup report says, foreign ownership of Indian equities has crossed $220 billion, which means they hold nearly 48 per cent of the market’s free-float.
So, if FIIs decide to press the sell button, Indian equities will go for a toss.
The chronically weak rupee is already worrying foreign investors.
Having bought $15.1 billion worth of equities in the first five months of this year, foreigners have sold $2.8 billion in the past two months, said CLSA’s Christopher Wood, whose weekly Greed & Fear column is widely followed by global investors.
The rupee on Friday closed at 60.88 against the dollar after touching an all-time low of 61.8 during mid-week transactions.
The domestic currency has fallen over 12 per cent against the US unit so far this fiscal.
The key benchmark indices, the BSE Sensex and the NSE Nifty, are still showing some life thanks to a few heavyweights, particularly from the FMCG and IT sectors.
A slowdown in FII investments saw the benchmark indices tumbling almost five per cent, shattering the confidence of domestic investors, with several mid- and small-cap stocks taking a beating.
Goldman Sachs, which recently downgraded India to underweight from neutral, said: “Very little foreign selling has occurred in Indian equities relative to the massive foreign inflows over the past few years. We see increasing risk of a potential flow reversal in equities, particularly in crowded financials.”
According to Morgan Stanley, the RBI’s dovish commentary amidst possibly the severest liquidity tightening that the central bank has initiated since 1998 has made the asset markets even more vulnerable to global cues especially on possible tapering of quantitative measures in the US.
Domestic institutions such as Life Insurance Corporation, banks and mutual funds currently lack the wherewithal to fight FII pull-out. Earlier, they used to act as counter-party whenever FIIs resorted to heavy selling.
But with tight liquidity, they may find the going tough in future.
LIC has been participating almost in all disinvestment programmes of the Government, while mutual funds still face redemption pressure.
Not only the broking community and investors, even the common man, now is hoping that the Government wakes up to the prospect of a heavy FII sell-off. Otherwise, large-cap stocks too will be clobbered.
Morgan Stanley, which had earlier projected that the Nifty would trade in the 5,600-6,300 range, now thinks the index Nifty is likely to be in a lower trading range of 5,200-6,000.
“We cut our bear case target from 17,912 to 16,200,” Morgan Stanley said on Sensex.
> badrinarayanan.ks@thehindu.co.in
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