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Huge spikes and corrections in the BSE Sensex have lately come to be associated with the infusion and withdrawal of capital from foreign institutional investors (FIIs). Are India's stock markets becoming over dependent on FIIs? By Krishna Gopalan The bull run on Dalal Street has resulted in the Sensex crossing the 8,000 mark. In the midst of this euphoria, what has been quietly forgotten is that there were a couple of worrying hiccups on the way, which included the Sensex losing ground to the extent of close to 150 points on one day. The question, at this stage, really comes down to how much steam is still left in the market and more importantly, whether Indian stock markets over-dependent on the FIIs (foreign institutional investors). Some markets observers choose to call the current situation a "Hobson's Choice" for the FIIs, simply because there are just not too many markets where they can put in their money. "If the FIIs have been booking profits, it is to be viewed as a normal trend. Overall, we still anticipate a steady flow in FII money," says Amit Rathi, Director, Anand Rathi Securities. It needs to be understood that FIIs too think like normal investors and when the returns look good, they are bound to cash in. What, then, is the extent of interest that the FIIs have in India? According to HDFC Bank's Head of Equities and market analyst Abhay Aima, the interest in India is to the extent that it is not about India or China. "Today, it is about India and China. Those who missed the China story do not want to miss the India story," he explains. This can be looked at from a different perspective since the options to invest for FIIs remain limited. As Khandwalla Securities' Director, Paresh Khandwalla puts it, "This is the market for the FIIs to put their money in since both the US and Japan are not performing markets." Are things looking comfortable in the foreseeable long-term? A large part of the answer to this depends heavily on which way global crude oil prices will move and how much the government here increases local petrol and diesel prices. Market observers feel that the recent price hike is too little and oil companies in India would have preferred a bigger hike. According to Ashok Kumar, CEO, Lotus Knowlwealth, the international crude oil prices are still off-season prices. "The increase in global prices is not something that can be swept under the carpet," he says. While these are areas that could cause considerable angst, the India story to most people continues to look good. "Valuations in some cases look stretched though the strong interest in India continues," says Alok Vajpeyi, Vice Chairman and Managing Director, Dawnay Day AV Financial Services. To most market observers, the issue of being over-dependent on FIIs does not find much favour, the reason being that there is enough momentum in this market as it is. According to First Global's Director, Shankar Sharma, the composition of the FII investment has been radically different and a large amount of money has come into old economy sectors like steel. If that is true, it is good news for the stock markets even as the movement from 7,000 to 8,000 has been quite rapid evoking some concern about how serious the FIIs are. Vajpeyi puts it quite succinctly when he merely states, "It is always worrying when things are moving quickly."
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