FIIs turn buyers in falling market for first time in '08

Buy Rs 513 cr of shares on Friday as frontline stock prices drop.

For the first time in 2008, foreign institutional investors (FIIs) turned net buyers in a falling market on Friday, indicating that frontline stocks in India may have become attractive for offshore funds. These stocks have taken a knock of 30-45 per cent from their recent highs.

FIIs were net buyers of Rs 513.04 crore in the cash segment, while domestic institutional investors (DIIs) sold equities worth Rs 66.79 crore, the data from the Bombay Stock Exchange website indicated.

Of the 48 trading sessions since the beginning of 2008, Friday's trading session was the only time when FIIs were net buyers in the cash market though the day witnessed the benchmark Sensex posting its steepest weekly decline since May 15, 2006.

There were 14 days when FIIs were net buyers this calendar year. On the other 13 occasions, the market ended higher on the back of buying support. However, later days saw FIIs returning to their selling spree, bringing the markets down further.

FIIs were net sellers of Rs 35,000 crore in the cash markets this calendar year, according to the BSE data. Domestic institutions, led by insurance companies, were net buyers of over Rs 20,000 crore, but they failed to stop the continuous downfall of the indices this year.

The Sensex is now 23 per cent down from its peak of 20,873 on January 9. The benchmark fell by 1,603.2 points or 9 per cent this week.

"As markets go lower and lower, they become extremely attractive. As the price levels get right, there is definite investor interest and the downside may start getting limited. The market will see a couple of more weeks of volatility and negativity before sentiment improves," said Gurunath Mudlapur, chief investment officer, Atherstone Capital Markets, an institutional brokerage outfit.

Dealers point out that some long-only funds have begun to buy in the market. "To say that the sentiment has changed, there should be a sustained upmove," said an FII analyst, who did not wish to be identified. While long-only funds had begun to deploy money, the correction might be far from over, cautioned the analyst.

Emerging markets can be very volatile and they correlate closely with the S&P500, mostly in the last couple of years. If you look at India, the bellwether Sensex went up from 3,000 to 21,000 between 2003 and this January.

"We can easily have a 40 per cent correction from the 21,000 level or even a 50 per cent correction and that would not necessarily mean that the long-term upward trend in Indian equity is disturbed. You can easily have 50 per cent corrections in bull markets. But to sit there and say, the US has problems and we don't have any problems is ridiculous," investment guru Marc Faber said in an interview to a private TV channel.

According to industry estimates, at least Rs 18,000-20,000 crore raised by mutual funds through new fund offerings in the last couple of months is waiting to be deployed in the market.

The other reason DIIs have been circumspect about investing at these levels is the advance tax payment provisioning that they have to do.

Since the beginning of March, DIIs have bought equities worth a dismal Rs 52.22 crore, much lesser than what FIIs have sold in the same month "" Rs 995.63 crore.