Sensex sees third biggest fall in Asia-Pacific in a week

May not be the most attractive FII choice at present

The country's benchmark index, the Sensex witnessed a fall of nearly 2 per cent between August 17, 2005 and August 24, down to 7612. This was the third biggest fall among the exchanges in the Asia Pacific region (APAC) during that period.

The highest fall was recorded by Jakarta Composite by 7.04 per cent to 1035.45, followed by Hong Kong's Hang Seng with a 3.73 per cent fall.

Analysts said foreign institutional investor (FII) net fund inflows into India have slowed down over the past week. This was a change from the high inflows witnessed over the previous 8 to 9 weeks.

According to numbers released by Sebi, net FII equity inflow as on August 23 was just Rs 9.4 crore and a net FII outflow of Rs 77 crore on August 22, compared with net inflows of Rs 420 crore on August 9 and Rs 807 crore on August 8. The slowdown in FII inflows have been a main reason behind the fall in the index over the past week.

According to analysts, the fast-paced growth in Indian markets over the past few weeks may have led foreign players to be more circumspect, at least in the short term. FIIs have been making big investments in India this year.

They have been net buyers in Indian equities for five of the seven months till July. In fact, July witnessed the biggest net inflows during 205 at Rs 8212 crore, followed by February and March at Rs 7823 crore and Rs 7518 crore respectively.

The sustained buying and the resultant liquidity have been singled out by many analysts as the big push which has taken the Sense beyond 7,800.

However, with the index at all-time high levels, the attractiveness of Indian equities may be on the wane for FIIs, compared with other Asian peers, say analysts.

However, they note that a short term fall in the Sensex may not necessarily mean it is time to panic. While, the Sensex is often considered as the indicator of India's economic strength, analysts note that the index representation is limited so as to draw any major conclusions.

Dileep Choksi, a partner at consulting major Deloitte, said the Sensex has few stocks, which may or may not represent the overall health of the economy.

So although a slowdown in FII inflows may have triggered the fall in the index, it may not necessarily reflect the economy's image as far as foreign investors are concerned.

Interestingly, over the one month ending August 23, the Sensex actually registered an increase of 1.42 per cent. The biggest gainer during the month was China's Shanghai Composite with 11.65 per cent, followed by Japan's Nikkei at 6.29 per cent.

The biggest loser over this period was Jakarta Composite, which recorded an 11.48 per cent decline, followed by Taiwan Weighted index which lost 4.57 per cent and KLSE Composite index, which posted a loss of 1.46 per cent.