Stock market's foreign affair may be over

FIIs sell equity worth Rs 9,902 crore in last two weeks

Foreign institutional investors (FIIs) have turned net sellers of equity worth over Rs 9,902 crore in the last two weeks, signifying one of the biggest phases of unwinding positions in the Indian market.

While the flight of money away from Indian bourses has been attributed to reasons like global restructuring of portfolios by these players, the fact remains that India is losing more money than most other emerging markets.

Though even as late as three months ago analysts were extolling the growth and the strong fundamentals on which the economy was based, these now seem to have been overshadowed by the view that Indian equities have run ahead of the story.

"Indian equities markets are ahead of the story. We downgraded India in early May. Even with the current fall, all other emerging markets other than Chile are cheaper than India," said Adrian Mowat, chief Asia equity strategist, JP Morgan.

If liquidity pumped in by the FIIs and hedge funds was responsible for the Sensex to double in just over two years, the rest of the year may not see significant growth in FII inflows in comparison to last year.

While Thomas Gerhardt, global head of emerging markets equity, DWS Investments, said that FII inflows could be as high as last year, Mowat pegged incremental inflows for the rest of the year at $5-10 billion.

Merrill Lynch fund managers continue to be overweight on other Asian emerging markets. They see more money being pumped into equities in Taiwan, Singapore, Hong Kong, Thailand, South Korea and Indonesia. India may turn out to be one of the bigger losers in the Asia Pacific region, along with New Zealand and Australia, they said.

FIIs' estimate for the Sensex by the end of year is also considerably toned down in comparison to the euphoria that the index generated when it crossed the 12,600 level.

UBS Securities has pegged the Sensex at 11,400 by the end of the calendar year, JP Morgan is more pessimistic at 11,000 and DWS estimates it to end the year at 12,000. The index closed at 10,809 on Friday.

That's looking forward to growth of 1.73 per cent at the lower end and 11 per cent on the higher end for the next seven months, a far cry from the 110 per cent the Sensex clocked since January 2004, when FIIs took the bull by the horns on Dalal Street.

Global fund managers are also trimming their exposure to Indian equities to a few sectors and select scrips. J P Morgan is positive on IT, pharmaceuticals, engineering and banking sectors, according to Mowat. The themes that excite DWS are infrastructure, consumption and generics.

"Infrastructure has huge demand in India as the government has realised that future economic growth depends on the improvement of infrastructure. As regards generics, it is already very developed in India; some market leaders in western countries have increasing difficulties in financing the health systems; therefore, more demand for cheaper drugs," said Gerhardt.