FIIs dither in a shallow market

High impact cost proves a deterrent

Foreign institutional investors (FII) have been relatively inactive in the equity market in the last two months with total FII volumes dropping to as low 10 per cent from an average 22-24 per cent of the total volumes recorded on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) between January and May this year.

Players said that FIIs have stayed away from a very shallow market "" volumes have fallen sharply on the bourses"" because the impact cost is very high and any major sale pulls the market down in a big way.

Brokers said that the drop in volumes is due to a lack of direction in the market, which seems to be hounding most participants.

Shyam Bhat, assistant vice-president - investments, Principal PNB Mutual Fund, said, "Lack of depth is a deterrent for big players as impact costs can be very high in such a scenario."

Said another fund manager, "With the market mostly moving sideways, direction is what most players are looking for but lack of clarity is affecting everybody's strategy."

Activity levels have dropped markedly from mid-May, when the parliamentary election results were declared. Selling has been seen from most quarters when the market goes up but slows down with its fall.

Pankaj Shah, managing director, Strategic Capital Ventures, said, "Figures suggest that though FIIs have been net sellers almost to the tune of Rs 1,000 crore in the cash segment in the last two months, they have been buyers in the futures market, which may indicate that they are still positive on the India story."

He added that the foreigninstitutional investors do not seem to be selling when the market falls, citing its sideways movement as justification.

A spate of events such as the much expected Fed interest rate hike, the softening of the global oil prices and more closer to home, the immediate impact of a new coalition government and its policies, specially the Union budget were expected to give some clarity and direction to the market but things seem to have only got cloudier, what with an erratic rainfall and the much hyped transaction 'Chidambaram' tax coming into the picture.