Thursday, May 25, 2006

Why Panic, It's Normal FII Activity

MAY comes to haunt once again. The bad news is that the Indian stock markets have had a hard knock and tumble. As usual fear grips with doomsday conversations doing the rounds that the FIIs have pulled out their money. This is however a fact. The good news, however, is that this is nothing unusual. FII pullouts have repeated at relatively predicitible points in the past.

The fact that I have woken up early to write this means it has been playing on my mind since last evening, and each time I have had such nagging ideas I have been absolutely correct. I say this rather humbly.

The total amount of money pulled out by FIIs this month is Rs 3,500 crore.The last time the index fell, in October 2005, FIIs had pulled out Rs 3,805 crore. At the time, Nifty index slumped to 2300.

So what makes it different this time. Despite all intelligent reasons attributed to it–rising US interest rates, metals meltdown–as of today, the FIIs have pulled out less than they did in October 2005. This is positive news.

There was another occassion, May 2004, when such a large sum was sucked out by the FIIs, again Rs 3,250 crore.

In my opinion, considering the large sums of monies involved, FIIIs would pull at most another 500 to 750 crore, taking the Nifty index lower by another 200 points to about 2,750. From this point onward we should see the markets start to move up.

Despite all the noise around, I continue to be very bullish. Yet I love and will embrace 2750 because it is an essential part of the great times ahead.





Consider how the crisis has unfolded over the past eighteen months. The proximate cause is to be found in the housing bubble or more exactly in the excesses of the subprime mortgage market. The longer a double-digit rise in house prices lasted, the more lax the lending practices became. In the end, people could borrow 100 percent of inflated house prices with no money down. Insiders referred to subprime loans as ninja loans—no income, no job, no questions asked. - George Soros in latest book

everything’s going up, there’s a feelgood factor and people tell each other how much their houses are going up at dinner parties,” says Professor Mark Stephens of York University’s Centre for Housing Policy. “Then the music stops, as it always does.”

year, Japan was a more attractive market to put money in. If you look at the US, we can now get an internal rate of return of 25% there, so why would anyone want to come to India?” - a senior executive at an international financial services group, who did not wish to be named.

people told us house prices never go down on a national level, and that there had never been a default of an investment-grade-rated mortgage bond, "Mortgage experts were too caught up." - John Paulson, trader, who bet against subprime market and made $15 billion.

most puzzling are the real-estate projects of Parsvnath. Just have a look at the Pride Asia project near Chandigarh. They are asking almost US $300K-$350 K dollars for 2 bed room apartments. They have Villas in this project that costs more than US $1.5 million dollars. It is true that some people in India have that kind of money in India. However most of their wealth is black money and that can not be used to buy these properties. Obviously, these projects have been launched keeping NRIs in mind. - Sanjeev, comment from another site

Desai, aka Bani, the star of Balalji Telefilms's soap, Kasam Se, has been house hunting for over a year. She had almost closed a 2-BHK deal last year for Rs 1.5 crore in a Oberoi Constructions' building located at Andheri, Mumbai, but when she went back to confirm it, she was asked to cough up Rs 2.61 crore. Since then, she is still house hunting. - Mumbai Mirror


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