Foreign institutional investors (FIIs), prime movers of the Indian stock markets, have got more bang for their bucks in 2011 than ever. According to data provided by the Securities and Exchange Board of India (Sebi), FIIs had sold Rs 1477 crore worth of stocks, net of buying, till December 12. The BSE Sensex lost 4,295 points during this period.
At this rate, for every crore pulled out this year, the index lost three points. This is the first time in the last 11 years that the influential foreign funds have spent less than a crore to move the benchmark by a point either way. A Business Standard Research Bureau study of monthly inflow data since 2001 shows the market's prime movers have spent between Rs 5 crore and Rs 50 crore to move each point.
The study shows that outflows have been more effective than inflows in moving the index. In the previous bear phase spanning January 2008-March 2009, FIIs pulled out Rs 60,468 crore, causing the Sensex to fall 10,578 points. Every Sensex point cost them Rs 5.7 crore.
On the other hand, during the bull run between January 2004 and December 2007, foreign funds spent Rs 13.5 crore for every point. During this period, they bought stocks worth Rs 1.9 lakh crore, taking the Sensex up by 14,448 points.
The post-Lehman recovery that started in April 2009 and received an upward push with the return of the UPA government at the Centre, was even more expensive, at Rs 22.7 crore per point.
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The Sensex gained 9,812 points on the back of inflows of Rs 2.2 lakh crore. Experts say the new equation is a result of worsening macro fundamentals and lack of internal liquidity support from domestic investors. Angel broking CMD Dinesh Thakkar says: "Every year, we have been receiving flows of $15-20 billion from foreign investors. We saw outflows only in 2008, but then there was global catastrophe. But, this year, flows have been negligible. Also, inflows into mutual funds and life insurance companies have been negligible. Thus, there is no liquidity support for the markets." He adds that high inflation, high interest rates and slowing growth rates have created an atmosphere where stock prices can't appreciate.
Foreign investors have been net buyers in nine of the 10 calendar years since 2001. They have been net sellers only in 2008, when the sub-prime crisis and Lehman brothers collapse crippled the global markets. That year, they spent Rs 5 crore for each of the 10,639 points the Sensex lost. In terms of cost per Sensex point, 2004 was the most expensive for FIIs, when they spent Rs 50 crore for every point. The Sensex moved just 763 points on net inflows of Rs 38,766 crore. Last year, 2010, was next on the list, with every Sensex point costing Rs 43.7 crore.
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Thakkar of Angel Broking feels the outlook, though cautious as of now, will turn positive in the first quarter of FY 2013. "By April, inflation will begin to cool down to the seven per cent level, bringing growth on RBI's radar. Lower interest rates will then help the industry grow." That may bring back foreign investors, who are keeping fingers crossed. According to a Mirae Asset Global Investments report, emerging market equity fund flows, while negative for the year, are likely to reverse course modestly in 2012, given the attractive valuation and resilient economic growth in the region. It adds that risk appetites will remain suppressed until a clearer resolution of the euro zone debt crisis materialises.