It's a tug of war between domestic institutions and FIIs

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 It's a tug of war between domestic institutions and FIIs
Foreign Institutional Investors (FIIs) have been net sellers in the cash market for 11 days on the trot. In these 11 days domestic institutions have been buyers, thus supporting the market on every dip.

On Wednesday as the Nifty dived 150 points in intra day trade, reports were that LIC supported the markets resulting in the Nifty falling by just 2 points at the end of the day.

In fact, on Wednesday domestic institutions net bought in the cash market to the tune of Rs 506 crores, while FIIs net sold to the tune of Rs 1120 crores. This has been a trend for the last few days.

In fact, in 2012, FIIs invested more then Rs 1 lakh crore, while domestic institutions sold shares worth more then Rs 55,000 crores. The trend has been reversed in the last few weeks.

Going forward its likely that FIIs would continue to press sales in Indian stocks, while domestic institutions would be net buyers. How much domestic institutions can support the market, if FII press large scale sales is not certain given the fact that the government's divestment programme is likely to take place, in which domestic institutions are big subscribers.

One thing is certain that FIIs would continue to net sellers in the next few weeks. Almost all of the top foreign funds and foreign brokerages have downgraded India's GDP and corporate earnings. There are also fears that credit rating agencies would downgrade India's sovereign rating to junk status, which could lead to an exodus of foreign funds.

In fact, there are many foreign funds who are mandated to invest in emerging markets with a certain level of sovereign rating and a downgrade would certainly be bad news for India.

A falling rupee, rising current account deficit, rising interest rates and a sharp drop in corporate earnings leave very little incentive for them to invest at these levels.

Read more about: fiis, gdp
Story first published: Thursday, August 29, 2013, 8:44 [IST]
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