BOMBAY, 27 October 2003 — The Indian stock markets are currently the best running “superhit” show and the “stars” are the stocks which seem to be bent on breaking all the 52-week records.
Well, this feeling of irrepressible optimism was omnipresent till, say, last week. Now suddenly, the seeds of doubt have started creeping in. And before these seeds sprout into trees of complete pessimism, it is imperative to shout from the roof tops, “the bull run is not yet over”!
The past week had been very choppy for the Indian bourses. There was a huge selling spree amidst concerns over huge outstanding positions in the futures and options (F&O) segment. The generally bearish mood was also attributed to a slump in global markets, especially Asian markets. Till Thursday, the BSE Sensex had shed 283 points, or 5.7 percent, in just four trading sessions, wiping off Rs.650.00 billion of investor wealth.
On a more serious note, this sudden selling on the Indian markets was initiated in large measure by three main factors — the desire to book profits and cash in on recent surge, fears of a slowdown in foreign institutional investors (FIIs) (after reports that FIIs were preparing for a sell off in the derivatives markets) and lastly, due to the imposition of fresh margins by the National Stock Exchange (NSE) on 19 scrips. Infact there is now a consensus that among all the reasons, the huge outstanding positions in derivatives contributed maximum to the volatility in the market.
Brokers on the NSE confirmed that FIIs have indeed turned jittery in the futures markets. The trend indicates that while FIIs are still bullish on specific stocks, as shown by the purchases in the stock futures segment, they are hedging their overall equity exposures. Some brokers say that there are no buyers for November futures. This is abnormal since expiration of the current month (October) contracts are due next week. One FII was quoted saying that they are selling on the Indian markets as globally as markets are down and this nervousness has spread all over and they prefer to book profits in India while the going is still good.
Despite this news from the brokers, Securities and Exchange Board of Indian (SEBI) continued to report healthy FII figures for these days, figures reveal that local funds resorted to selling. The SEBI has disclosed that FIIs made net purchases worth Rs.3.19 billion on Monday (when Sensex fell 79 points) and Rs.2.86 billion on Tuesday (when Sensex fell 96 points) and Rs.2.03 billion on Wednesday.
Inflows from FIIs have crossed $5 billion in 2003. This includes close to $4.2 billion investment in equities and $800 million debt inflows. In October alone, FIIs have pumped in $1.15 billion so far into the market. Investment in equities accounts for the most of this month’s inflows at $1.1 billion. This is against $740 million in the whole of 2002.
Data indicate that FIIs purchased 12.12 million shares of second-line stocks such as Cadila Healthcare, Glenmark Pharmaceuticals, Ipca Laboratories, Lupin and Shasun Chemicals. FIIs also evinced reasonable interest in Divi’s Laboratories, Novartis India, Nicholas Piramal and Aventis Pharmaceuticals. FIIs owned 45.23 percent of the free float market capitalization of Bombay Stock Exchange Sensex stocks on Oct. 17. This is 3.23 percentage points higher than their holding on June 30. They now collectively own over 40 percent of the free float in the top 100 traded companies. Free float is the stock of a company available for trading and excludes the promoters’ holding.
Analysts say that over the past few months, the FIIs have been building huge positions on the cash market which lifted up the markets.