"Jack sold, Michael bought; the foreigners are still in the stock exchange..."

That's how Osman Birsen, CEO of the Istanbul Stock Exchange, reportedly tried to control the damage in Turkey, the market that has suffered the most after foreign institutional investors (FIIs) embarked on a stock-selling spree in emerging economies. An estimated $5 billion (Rs 22,500 crore) has been pulled out so far from emerging markets. And the carnage isn't quite over yet. In India, since the Sensex started plunging from its all-time high of 12,671 to 9,810.46 by June 9, the FIIs had sold Rs 10,460 crore worth of stock. They're still net buyers for 2006, thanks to the Rs 18,476 crore that came in between January and April. But if the selling trend continues, there's a real chance that the FIIs may end up net sellers in India for 2006-only the second time since they entered India in 1993.

"Undoubtedly, there is a global squeeze in liquidity. India is also feeling the pinch," says Asit Koticha, MD and CIO, ask Raymond James. True, but for how long will India feel the pain? The lurking dangers, for the entire global economy, are spiralling crude oil prices (experts don't rule out $100 or Rs 4,500 to a barrel) and rising interest rates (the us Fed has jacked up rates from 1 per cent in July 2003 to 5 per cent, and there's a fair chance of a further increase).

The good news for India is that the economy hasn't turned for the worse to merit a no-holds-barred sell-off. "Economic fundamentals haven't changed much in India," observes Andrew Holland, executive Vice President at DSP Merrill Lynch, who has been tracking markets since 1977. Adds John Band, Chairman, Zoom Cortex, a brokerage for FIIs: "No emerging markets stand comparison to India. The Indian market is easily the most attractive."

In the emerging market pack, Singapore and Malaysia are the only two markets that saw net inflow of foreign capital. Korea and Taiwan have a price-earning (p-e) multiple of 14.1 as against India's 21.1 based on 2005-06 earnings. Singapore, too, looks attractive at 17.4 and Malaysia at 15.6. The message in those numbers is clear: the Indian markets have been driven to excessive highs, and have run way ahead of the fundamental story. Band also points out another worry: The national debt. "The government has to seriously think of reducing the debt burden so that more long-term savings can be channelled to equities," he says.

The outflow of foreign funds isn't going to stop overnight, but once the markets reach a stable level-various estimates are between 7,000 and 8,000 for the Sensex-you can expect the FIIs to be back to their buying habits. Encouragingly, there are still hundreds of them registered with SEBI (Securities & Exchange Board of India)-916 as of June. Back in 2001 there were only 482 of them. And only 517 by 2003. Hopefully, before 2006 is through, like in Istanbul, there will be two Michaels mopping up shares for every Jack in exit mode.

Brazil or Korea?
(It isn't about soccer). The line-up of India's rivals for FII flows.

The Foreign Institutional Investors (FIIs) might have behaved as if India was struck by the plague during the recent market meltdown, yet the outflow from equities has been pretty much across emerging markets. In fact, countries like Korea suffered more: According to UBS research, till May 29, the FIIs had sold shares worth a little over $4 billion (Rs 18,000 crore) in that month; in contrast the flows out of India in May totalled $1.62 billion (Rs 7,290 crore). The indices in Turkey took the worst hit, down 41 per cent from their peak. India followed, with a 30 per cent plunge, and the markets of Indonesia, South Africa, Brazil and Russia were hit by 24-27 per cent.

So how does Dalal Street compare today? "India continues to remain in the top quartile of investment along with other BRIC countries (Brazil, Russia and China, besides India) and Vietnam," says Gerard Lyons, Chief Economist and Group Head (Global Research), Standard Chartered Bank. Lyons feels strong GDP growth and huge spending on infrastructure and reforms will be the key drive to attract investments in India and other emerging markets like Turkey and South Africa.

Lyons adds that "emerging markets are highly exposed to external factors. But they are able to cope and recover faster than other economies." Since 1997, inflation rates in emerging markets have dropped from 35 per cent to 5 per cent, and the current account deficit has dropped from 2 per cent to a surplus of 4 per cent. India, however, doesn't shape up well on the latter front, with a widening current account deficit, which stood at Rs 60,615 crore at last count. So how does India stack up against the rest of the EM pack? Says Andrew Holland, Head (Strategic Risk Group), DSP Merrill Lynch: "We can argue with India being costliest compared to its counterparts. However, being one of the fastest growing economies it will certainly enjoy additional premium to its counterparts."

-Mahesh Nayak

AT&T's Back
But it's not in the wireless space this time round.

Along time ago-at least it seems that way-AT&T Wireless, the mobile arm of AT&T, was present in India through two joint ventures, one with Idea Cellular, and the other with BPL Cellular. A lot has happened since: the A.V. Birla group has bought out the Tatas in Idea, Hutchison has gobbled up BPL and much before all that happened, AT&T Wireless exited the country after it was bought over by Cingular Wireless. Meantime, AT&T itself was merged globally with SBC Communications, although the AT&T brand lives on. In fact, it's got a second wind in India. AT&T has joined hands with the Mahindra group, via AT&T Global Network, a division of AT&T Inc. AT&T Global will hold a 74 per cent stake in the joint venture, and Mahindra group company, Mahindra Air Services, will hold the rest. The JV has been christened AT&T Global Network Services.

AT&T Global in India will focus on long-distance services, internet-related services and a host of convergence offerings like provision of information networks, virtual private networks and, of course, broadband. AT&T declined to comment specifically on its Indian plans and proposed investments. "We have only recently formed the JV and received FIPB (Foreign Investment Promotion Board) approval. So, we are still at an early stage in the process," is how a spokesman put it. He added that it was not possible to disclose details of the new JV business since "there are a number of uncertainties about the operating conditions of the licences we are evaluating."

AT&T currently works with long-distance service providers like VSNL, Bharti and Reliance. What is expected to work in AT&T's favour is that the long-distance business is perhaps the easiest to execute in the entire telecom game. Once the JV's network is in place, it will be possible for AT&T to carry its own traffic to important countries like the US where it is a well-established player. The big question, though, is: Is AT&T in its new avatar here to stay this time around?

-Krishna Gopalan