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    Foreign funds begin selling modestly; is there more to come?

    Foreign funds begin selling modestly; is there more to come?
    Foreign funds have begun modest net selling in the cash segment of the equity markets, in a sign that the gush of foreign fund flows witnessed after the government unveiled reforms is waning.

    According to information available from the National Stock Exchange, on Oct 26, Foreign Institutional Investors (FIIs) pressed more sales than purchases and net sold to the tune of Rs 198 crores.

    On October 25, FIIs net sold to the tune of Rs 551 crores. Over the last few days the net purchases of foreign funds have not been substantial, suggesting that foreign fund appetite is gradually waning.

    Analysts believe that this might be largely to do with the sharp run up in equities ever since reforms were announced and also the fact that fundamentals maybe coming to the fore.

    In fact, Indian Sensex price to earnings multiples have risen sharply ever since the run up in shares. Currently trading at 15 times forward earnings the Indian markets are certainly expensive.

    Foreign funds are unlikely to buy at ridiculously high levels, considering that the price to earnings multiples of some blue chip stocks like Hindustan Unilever, ITC and a few private sector banking stocks are very high. In fact, in some cases the price to book values are at abnormally high levels, which is likely to deter any FII purchases.

    It will not be surprising to see FIIs continue to press sales, given that economic fundamentals around the globe are getting worse and the US is grappling with an unresolved fiscal cliff.

    On the reforms front as well things have been quiet and unless there are a few more announcements, foreign funds may not be too enthusiastic to make purchases at the current high levels.

    Any purchases would now depend on the elections in the US, the US fiscal cliff being resolved and a renewed thrust on reforms.

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