R Jayaraman Iyer, CMD of Stock Holding Corporation, said that the stock markets could face destabilisation due to the strategies adopted by foreign institutional investors (FIIs)."While concentration on a few stocks or group of stocks tends to result in stock prices overreacting to changes in fundamentals, the herding, wherein FIIs buy and sell in herds, tends to create disarray and panic in the markets they exit and overheat the markets they enter," he added.Positive feedback trading wherein FIIs buy more stocks on days following an increase in the market and sell stocks on days following a decline in the market tends to accentuate the rise or fall leading to high volatility, Iyer added.On whether the stock markets help the economy develop, as it ought to according to market proponents, Iyer said: "FIIs gain at the loss of local investors. I am not decrying the role of FIIs. The question is whether such development can contribute to the economic development of the host country."
