For India, the real worry comes from Foreign Institutional Investors (FIIs) who net sold in equities to the tune of Rs 634 crores on Friday, according to data from the Securities and Exchange Board of India. In the first three months of the calendar year FIIs had purchased shares worth Rs 44,000 crores and any reversal in the net inflows could spark trouble for the Indian markets.
In fact, FII ownership of Indian equities is more than 16% as at the end of March. In the last few weeks several of the foreign institutions including Morgan Stanley, Goldman Sachs, Bank of America Merrill Lynch have cut India's GDP forecast and there is likely to be an earnings downgrade as well.
Markets across the globe fell sharply during the week, which can be described as one of the worst weeks in 2012. FIIs generally tend to act in tandem with global markets and press sales in India, if global markets drop sharply. On Friday when markets around the globe came off sharply FIIs net sold in Indian equities.
It is unlikely that global markets will recover, which means falling markets will give rise to fresh selling pressure from FIIs. Domestic institutions and mutual funds are unable to absorb the selling pressure and hence markets are likely to slide further.
Investors are advised caution and not to try catching “falling knives”. Buy when a firm bottom has been achieved.