Since the beginning of this month, foreign institutional investors (FIIs) have been net sellers in the Indian equity market. For a market largely fuelled by the FII movement, it resulted in both the Bombay Stock Exchange’s (BSE’s) Sensex and the National Stock Exchange’s Nifty to lose close to five per cent in the same period.
According to BSE data, the net equity sold by FIIs was Rs 3,645 crore between May 2-10. However, in the preceding months — March and April — FIIs were net buyers (Rs 8,399 crore). Although India’s high inflation has been a cause for concern for some time now, the post-Budget buying by FIIs showed that they still expected the corporate sector to deliver. But that didn’t happen. The results for the quarter ended March were not on the expected lines, with corporate margins under pressure.
The latest selling spree by FIIs, however, was sparked off after the Reserve Bank of India (RBI) raised interest rates by 50 basis points (bps) rather than the expected 25 bps last Tuesday. Most FIIs have not been enthused by RBI’s stance that it is willing to sacrifice the economy’s growth to curb inflation.
Although the domestic institutions have been buying Indian equities, they have not been able to prop up the markets, given the huge selling by FIIs. According to the BSE data, the net purchases of domestic institutions (which includes mutual fund houses, insurance companies and banks) added up to Rs 3,330 crore (May 2-9).
According to market analysts, equity markets will continue to do volatile trading within a broad range. Further, the government’s divestment program for this financial year is expected to suck out money from the secondary market to be put into the primary market. The Power Finance Corporation follow-on public offering, which opened for subscription on Tuesday, is expected to garner over Rs 4,600 crore.
While the impact of FII buying and selling is keenly watched by day traders, it should not really matter to retail investors. Simply, because retail investors need to stay invested for the long term, if they want to see substantial returns on their investments. FII money is often termed as hot money and retail investors should be careful not to mimic FII movements.
With the Sensex dipping more than 1,000 points, retail investors are advised to use the opportunity to buy into equities at lower levels. They should remain invested, since the next two quarters are expected to be rather choppy. If you are already invested in equities, it is time to evaluate your portfolio. If you have profit-making frontline stocks, stay invested. If you have not-so-profitable midcap and smallcap scrips, it is time to exit and buy the frontline scrips.
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After the credit policy last Tuesday, rate sensitive sectors such as banking and auto stocks had been beaten down aggressively. The BSE Auto index lost 3.5 per cent in the week after the credit policy, whereas the BSE Bankex fell by 1.39 per cent. Investors should look at select scrips from these sectors to invest. They could also look at investing in consumer durable scrips and PSU issues that will hit the primary market. These will be offered to the retail investors at a discount.
Retail investors, even now, are being advised to stay away from momentum driven sectors such as real estate, telecom and infrastructure. These companies have not rewarded the share holders as much as they were hyped.