Markets weather FII selloff

Stocks find support from domestic institutions despite $4 billion sales since October 17.

Since October 17, the day the Securities and Exchange Board of India (Sebi) proposed curbs on participatory notes (p-notes), foreign investors have been net sellers in stocks and derivatives for over $4 billion.

However, markets have shown rare resilience on the back of strong buying support from domestic institutions, led by local insurance companies.

Figures on the website of the Bombay Stock Exchange showed that foreign institutional investors (FIIs) were net sellers of Rs 7,682.87 crore ($1.97 billion) in the cash markets.

According to data from Securities and Exchange Board of India (Sebi), the FIIs were also net sellers for another $2.4 billion in derivatives markets after the proposal to curb investments through participatory notes (P-notes) hit the markets.

"Markets have shown strength despite the big churn in the portfolios by FIIs. We understand that mutual funds and insurance companies have been big buyers in recent days. P-note holders are also holding on to their exposures into India," said Jignesh Desai, head of institutional sales at SBI Caps.

The Sensex, which was at 19,051.86 on October 16, is now higher at 19,289.83 despite the selloff by FIIs. Even after the sales, FIIs were net buyers for over $17 billion this year, a record in a calendar.

In February, the Sensex shed 11.69 per cent or 1,714 points to 12,938 after hedge funds and other foreign investors started to bring down their exposures taken through "yen carry trades" in stocks and commodity funds across the globe, including India.

During the US sub-prime turmoil of August, the Sensex shaved off nearly 9 per cent, or 1,318 points, (from 15,308 on August 8 to 13,990 on August 21), after foreign investors fled riskier assets in emerging markets, including the Indian stock markets.

"Mutual funds, which were sitting on 10-14 per cent cash till last week, have now become big buyers. They have now brought down the cash levels to 4 per cent levels," said Desai.

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NUMBERS IN A NUTSHELL

Total sales in cash segment since the P-note issue "� Rs 7,682.87 crore ($1.97 billion)

The biggest single-day net sales in cash segment on October 17 "� Rs 2,012.06 crore ($5.12 billion)

Net sales in F&O segment by FIIs "� Rs 9,385.41 crore ($2.4 billion)

Most sales are the result of profit-booking and unwinding in P-notes, cite dealers