FIIs make a killing in rally

The 1,800-odd point bull run from April 3 in the Sensex has benefited foreign investors more than domestic investors, thanks to the appreciation in the rupee.

Stocks have gained by nearly 15 per cent since April 2, but overseas investors gained by over 20 per cent, as reflected in the BSE's Dollex index, which tracks the dollar returns for the same set of stocks in the Sensex.

The key indices have been on an upward march from April 3, after concerns over rising inflation and interest rates subsided, triggering fresh buying in bank, technology and oil & gas stocks.

Global cues such as Japan's decision to keep the rates unchanged (at 0.50 per cent) also acted as a boost considering that this would encourage further inflows of foreign funds on expectations of higher returns over a 2-3 year horizon, said analysts.

The Dollex-30 returned over 20.43 per cent since April, in contrast to the near 15 per cent growth in the Sensex during the same period.

"Foreign inflows totalled $14.7 billion over the last two years, which is almost five times the inflows of $3 billion during the preceding five years," said Ridham Desai, Morgan Stanley's India analyst.

"The indicators of retail investor participation in the Asian equity markets have moved to relatively high levels, with signs of excesses emerging in China, Australia and, to a lesser extent, India," he said, in a note to investors this week.

Vibhav Kapoor, group chief investment officer, IL&FS, said the market was looking good in the coming days, at least for the next one month or so. He said FIIs made higher profits in the current rally compared with the domestic investors owing to the rising currency and are booking profits at current levels.

"But the liquidity is good and the buying from local mutual funds is supporting the market. Inflation is coming under control, interest rates have topped out and election-related uncertainties are over," he added.

The benchmark Sensex index today rose by 172.40 points or 1.22 per cent to 14,299.71. The broader NSE-50 Index ended higher by 48.6 points (1.17 per cent) to 4,219.55.

The Sensex has shot up by 1,844.34 points (14.80 per cent) after the last hike in the key interest rates by the Reserve Bank on March 30. Analysts said the market breadth, which is getting narrower, is a matter of concern.

They said heavyweights such as Reliance Industries (up 27 per cent), Bharti Airtel (up 15.42 per cent), Tata Steel (up 37.77 per cent) and ONGC (up 8.7 per cent) have been the flag-bearers of this nearly 1,800-points rally, spread over the last one-and-half months.

Despite the 9 per cent rise of the Sensex in rupee terms, Morgan Stanley has concluded that the last 12 months have not been reminiscent of a furious bull run.

The apparent bull market has been quite shallow with most stocks delivering negative returns, weakening market breadth and shrinking trading volumes, according to a Morgan Stanley study titled How Deep is the Bull Market of the Past Year.

Firstly, over the last year, the MSCI India index has gone up by 21 per cent in dollar terms and 11 per cent in rupee terms. This implies that half the gains for any foreign investor is in fact due to currency gains.

"We expect the banking and tech counters to take the rally forward as they have largely been laggards in the current run," said a senior analyst with Kotak Securities.

He said the rupee was due for a correction and this would act as a boost for the companies such as Infosys, TCS, Satyam, and Wipro.

FLAG BEARERS FOR 1800-POINT RALLY

Tata Steel, up 37.77 per cent from Rs 433.56 to Rs 597.35

Reliance Industries up 27 per cent from Rs 1,327.65 to Rs 1684.85

Bharti up 15.42 per cent from Rs 736 to Rs 849.50

ONGC up 8.7 per cent from Rs 836.19 to Rs 909

Reliance Communication up 20.64 per cent from Rs 396 to Rs 499