Thursday, June 01, 2006

FIIs Are Buying Mutual Funds Units

FII top Net sales of Rs 7,352.20 crore in May

Read this article carefully. It could provide you with a perspective you never imagined before.

The purpose of this hypothesis is not to define how markets will move tomorrow or the day after, but to highlight a possibility that belies the current state of the market: Things are not quite as menacing as they seem.

Perhaps Chidambaram is right; the Indian economy is on track, nothing has changed in the fundamentals, but somehow I suspect that the Finance Minister is not disclosing everything. Behind the obvious calm face is a machiavellian mind devising a scheme whose goal is as yet not known. One would suspect aggrandizement for the party with a view to elections in 2 years.

Why are FIIs selling so heavily?

According to Sebi, FIIs sold Rs 7,354.20 crore in May, roughly $1.6 billon. Looking at past behavior and also the quantum of investments made in 2005 in to the Indian markst, about $1 billion is normal and expected to move out.

However, the discrepancy between NSE and Sebi figures belies the muted optimism that exists under this whole panic situation.

NSE figures for FIIs, derived mainly out of orders punched in by brokers on NSE and BSE terminals, show that on May 29, 2006, FII clocked net sales of Rs 116.42 crore, while Sebi figures indicate Rs 81 crore. For May 30, 2006, NSE shows net sales of Rs 262 crore, while Sebi shows net sales of Rs 8 crore.

My view is that FIIs have turned to some other equity investments in India, not necessarily in the purview of the stock markets. Just read what Sebi means by FII figures:

“Data pertains to all the activities undertaken by FIIs in Indian Securities Market, including trades done in secondary market, primary market and activities involved in right/bonus issues, private placement, merger & acquisition etc.”

The etcetera is not defined or stated. Sebi needs to clarify this to all investors.

The difference between the Sebi and NSE figures, means FIIs pumped Rs 772 crore in the last two days in to primary markets–how about the DLF IPO?–or did private placements or M&As.

So, where did this money go? Could the FIIs have considered the FM’s penchant for mutual funds, and poured money in there? I would not know if this is a wise move for FIIs, but the FII FAQs on Sebi.com clearly state that FIIs can in fact invest in units of Mutual funds.

Finally, the sell-off could also be the precedent to the opening up of FDI in retail and real estate. Money has gone out back to the original backers of these FIIs, and could re-enter as FDI in the country. A lot of FIIs would want to give profits back to their investors, and then encourage them to invest in another fund that does FDI investments. While this possibility does not work in favor of the bourses, it certainly does in favor of the Indian economy.

1 Comment:

Prashant Koli said...

New but important perspective...from known to unknown..

Thanks Bob

KM

ADBRITE REF

IN PASSING

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


“When
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.”

“Last
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.

"Most
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.

The
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

Prachi
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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