FIIs and MFs reduce exposure to stock markets

NetScribes/Janaki Krishnan

Foreign institutional investors and mutual funds are reducing their exposure to the stock markets. Consider this: net FII investments dipped from a high of Rs 26.19 billion for April 2000 to Rs 1.42 billion in September 2000. Mutual funds, that put in Rs 3.53 billion this May, ended last month with a net inflow of Rs 1.3 billion.

FII figures for the year so far are alarming, to say the least. Though FIIs pumped in Rs 645 billion, they also took out Rs 582.60 billion from the country, leaving a net purchase figure of a mere Rs 62.45 billion. In June and July, they pulled out Rs 9.59 billion and Rs 14.18 billion respectively.

The trend has been carried forward to this month as well. As of October 4, FIIs have already withdrawn funds to the tune of Rs 2.15 billion. On October 2, they pulled out Rs 1.75 billion and on the day after, Rs 1.12 billion.

The only foreign fund that has been buying heavily is Janus, which is now mopping up shares of Reliance. However, countering the effects of this sole fund's buying spree are other foreign investors.

Marketmen tracking FII investments say foreign funds are selling because they have taken a negative view of the Indian markets and economy. Besides, they are trying to tackle their losses in other emerging markets even as they have started looking afresh at the South East Asian markets, which are bouncing back after the crisis of 1997.

MFs, which were at one time threatening to overtake the FIIs in terms of investments, are also beginning to show a growing disenchantment with the stock market.

In January this year while FIIs put in Rs 1.51 billion, MFs put in Rs 6.22 billion. Although they did end up with a deficit in the next three months, their gross investments were close to the FIIs - a trend reflected in their net inputs in May, when against the FIIs' Rs 4.84 billion, they pumped in Rs 3.52 billion.

But there has been a steady decline since then. In the year so far, MFs have posted a net deficit of nearly Rs 5 million.

During the first two trading days of this month alone, MFs have invested a net amount of only Rs 96 million, while average daily gross purchases for the market have averaged at Rs 199 million.

The fall in MF investments in the markets is being attributed to the uncertainty in the markets and constant attrition in the resources of the funds due to redemption pressures. MFs are also going in for a churning of their portfolios and trying to maintain their net asset values at reasonable levels. Funds are also keeping their resources in reserve in order to declare dividends for the half-year ending September 30, 2000.

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