FIIs Keep The Markets Rolling

Strong FII inflows in equity reinforces confidence in the Indian markets from the most coveted quarters. With an improvement in the sentiment, the markets are likely to witness better movement going forward, says Saikat Mitra.

The Indian markets witnessed a flat move in the last fortnight. The Sensex and Nifty closed in the green, with gains of 1.09 per cent and 0.72 per cent respectively. The domestic markets have moved almost in tandem with the global markets, which have witnessed a positive closing in the last fortnight.

Though the earnings for India Inc. were better than the street’s expectations, they failed to bring in much cheer to the markets. After the earnings season, the markets were looking forward to other triggers in the market. The participants have set their eyes on the winter session of Parliament as the next trigger in line. This is being eyed because it is likely to see the government’s positive stance in implementing the reforms that were initiated by the Finance Minister. As usual, though, the proceedings of the House have been hampered by the opposition parties and an adjournment motion was passed. FDI in retail is the main issue over which the opposition is playing spoilsport.

The woes for the UPA government seem to be unabating. Its former ally Trinamool Congress tried to bring in a no-confidence motion against the government, but failed. The Finance Minister has revised the fiscal deficit target for the present fiscal to 5.30 per cent of the GDP. However, we feel that this figure also seems to be a challenging task, as the government has not been able to garner the required funds. From the 2G auction, the government had expected to raise Rs 40000 crore, but it has managed to raise only Rs 9000 crore. The picture is not clear on the divestment front either. Even the last offer for the sale of Hindustan Copper has not gone well, and it is only the government agencies that have helped the issue get subscribed.

On the global front, although the markets remained in the green in the last fortnight, worries on the much-hyped fiscal cliff have started haunting the markets again. Even the Organisation for Economic Co-operation and Development (OECD) said that the failure to prevent the so-called fiscal cliff in the US would increase the risk of a global recession. Therefore, there is still some time left before we can look to the global markets for positive cues.

Coming back to the Indian front, most of the indices in the broader market have closed the week in the green. Both the BSE Mid-Cap and the BSE Small-Cap closed up by nearly one per cent in the last fortnight.

On a sectoral basis, six out of the 13 indices have closed in the negative zone. The BSE Consumer Durables index has been able to secure the top spot, with a gain of over six per cent. The BSE Teck (+4.64 per cent) and BSE FMCG indices (+3.29 per cent) were the other top gainers. The upward movement in consumer durables can be attributed to the festive season, in which the demand for these products rises strongly. The main draggers in the last fortnight were the BSE PSU and BSE Power indices, which closed lower by 2.56 per cent and 1.54 per cent respectively.

Money inflows remained strong in the last fortnight, with FIIs pumping in Rs 3560.36 crore in equities. FIIs inflows have crossed Rs 1 lakh crore in equities in the present calendar year. However, DIIs ended the fortnight in the red, selling off equities worth Rs 913 crore in the last fortnight. The only breather for the markets has been that the sovereign credit rating agency, Moody's has retained its outlook on India as stable at the Baa3 level. This is partially due to the country's high savings and investments rates. This announcement by Moody’s comes amid worries sounded out by various ratings agencies over a period of time, which called for caution particularly on the twin deficit front and on policy inaction. We believe that there are better times are ahead, and maintain our bullish stance on the markets.