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Dancing to FIIs' Music

FIIs have the power to move Indian markets either ways and in certain stocks the effect was dramatic

2008 was an experience that few investors, traders and fund managers are likely to forget for a long time to come. They got hit from a direction that they did not research enough or totally ignored, that is, the advanced economies’ precarious fundamentals. In India, in one fell stroke, the foreign institutional investors (FIIs) withdrew almost totally from the market, felling it from a high of 20,873.33 points at the beginning of 2008 to a low of 8,509.56 points in October, a fall of 59.23 per cent.

Now, before investing, aside from looking at the India-specific fundamentals and other impact factors of companies, people also look at how global economies are doing, where the money flows are headed, the status of the biggest and brightest companies in the world, all this and much more is done now in a desperate attempt to keep up with the news and current trends in order not to fall prey to the same environment that powered the global financial crisis.

But is the power of the FIIs really all that potent? Wealth Insight takes a look. We checked out the worth of stocks that saw a change of hands in the BSE 200 universe and by how much the stocks, that were bought/sold by FIIs, rose/fell. This was calculated on a quarter-on-quarter (QoQ) basis.

There were some interesting changes that were noticeable and are worth mentioning.

In Bharti Airtel, one of the biggest telecom companies in India, FIIs reduced their holdings by about 1 per cent in each quarter. They sold shares worth Rs 1,509 crore during March quarter and then they shed shares worth Rs 1,671 crore in June quarter too. The stock price moved from Rs 312.9 on March 31, to Rs 401.05 on June 30 (this is the price on date). However, it must be kept in mind that FIIs were not the only buyers and sellers and therefore, this is a generalisation to an extent.

NTPC saw FIIs off-loading shares to the extent of Rs 687 crore during March quarter while in June quarter they sold shares worth Rs 997 crore. The stock price moved from Rs 180.2 to a high of Rs 195.05.

At the other extreme were the FIIs’ re-found blue eyed boys like Infosys Technologies, despite the infotech sector being, since the beginning of the recession, one of the worst affected. FIIs purchased stock worth Rs 1,340 crore in it during the March quarter and in the June quarter they bought shares worth Rs 741 crore. The price of the stock moved from Rs 1,324.1 to Rs 1,776.9.

On a sectoral basis there was a positive tilt towards the financial sector. They followed the general perception that the March quarter would have witnessed a sell-off and with the onset of the  bull rally from March 9, stocks under this sector would have been bought during June quarter. Only SBI which is the largest bank in India and is a PSU was not bought with the same fervour as it was sold.

The stock that saw its fortunes change the most during the bull run was Larsen & Toubro. But this had nothing to do with the performance matrix of the company. It had more to do with the Satyam Computer saga, wherein L&T had emerged as the leading company to takeover the ailing software giant. It was only in April, after Tech Mahindra was announced as the winner of the bidding process that the interest in the engineering giant tapered off. During the March quarter FIIs sold off L&T stock worth Rs 689 crore and after the race for Satyam was over and it was clear the company had lost its bid, L&T witnessed an inflow of Rs 2,666 crore for the June quarter. The stock price moved from Rs 672.65 to Rs 1,568.3.

DLF Ltd was another company that saw huge inflows. The sum was a mammoth Rs 4,682 crore during the June quarter. This was perhaps because of the good omen that came with the bull run as well as a rising trend in offtakes in the housing sector as well as the efforts of the realty companies being rewarded in getting  postponed their huge debt obligations. The company had seen an outflow of worth Rs 185 crore during March quarter of 2009. Its scrip price moved from Rs 167.2 to Rs 310.8.

Another trend-spotting exercise has resulted in the unveiling of the fact that when Indian markets started moving up, FIIs began selling off. While the list includes some noteworthy companies like Titan, Educomp Solutions, GMR Infrastructure, and India Infoline, topping the list was automaker Mahindra & Mahindra. Its FII inflow was Rs 148 crore in March, but when the markets rose, FIIs sold stock worth Rs 271 crore in June. Its stock moved from Rs 383.2 to Rs 692.5. The runner up here was GMR, with an inflow worth Rs 101 crore during March 2009 quarter and outflow of Rs 218 crore in June quarter. Its stock price moved from Rs 94.9 to Rs 141.65.

The BSE 200 stock index had an average position for the March quarter at 1,082 points compared to the average position of 1,569 points during June quarter. During the March quarter the FIIs investments saw an outflow worth Rs 6,671 crore whereas in the June quarter there was inflow of Rs 31,216 crore. Mutual funds investment rationale moved in the similar direction. They had an outflow of Rs 641 crore in March and then there was inflow of Rs 3,237 crore during the June quarter.

In effect, what has been noticeable from the action of the FIIs is that stocks have risen and fallen in tandem with the penchant of foreign money entering and exiting Indian stock markets . The power lies in their hands to push them up and strike them down at whim, as they are amongst the largest money-movers in India.

But the opportunities that this money throws towards investors and companies surely outweigh the dangers.