Indian stocks closed in the red on Friday although most of the Asian bourses closed in the green, and markets in Europe and the US were in positive territory trading in the green.

While market men say the main triggers were higher inflation numbers and the RBI's statement that this could mean further interest rate hikes, sentiment has been negative throughout the week leading to inactivity and indifference among investors.

Negative FII impact

“The rate hikes will negatively impact FII participation as well as corporate performance as the cost of borrowing money will now go up,” said Mr Alex Mathew, Head of Research, Geojit BNP Paribas Financial Services.

The Indian markets, along with the their global counterparts, have been declining from August 5, ever since Standard and Poor's downgraded the US credit rating from AAA to AA+. FIIs were withdrawing from Indian stocks, while domestic institutions continued investing.

For the period between August 5 and August 12, FIIs were net sellers for Rs 5,657.31 crore whereas domestic institutions were net buyers for Rs 4,671.03 crore. Retail investors were also net buyers on the BSE for Rs 287.94 crore.

Even while the Government, for its part, pacified and assured investors about the minimal effect on the Indian economy of the downgrade, investors lost all confidence. Market players say that investors sold, booked profits as well as losses this week as the global financial situation looked bleak.

Financial houses

Although Indian markets fell on global cues, they were given the thumbs-up by most of the financial houses.

Earlier this week, Goldman Sachs closed its year-long underweight position in India by turning neutral.

Reports by Citi group, Royal Bank of Scotland, Sarasin Alpen are banking on the growth prospects and timely policy actions by the RBI.

In spite of these reassurances, the Sensex declined by almost 5 per cent in the last six sessions.

“People are watching how the situation in Europe and US unfolds. For now, there is aversion to invest in equities. Any negative news will now have severe effect on the market,” said Mr Prakash Diwan, Head of Institutional Client Group, Asit C Mehta Financial Services.

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