Mumbai: Sensex, the benchmark index of the Bombay Stock Exchange, swung by 665 points before closing the day 518 points ahead on a day that saw renewed interest from foreign institutional investors (FIIs), reinforcing a growing belief among analysts that India and other parts of Asia were emerging as ‘safe haven’ investing destinations.
The swing, according to analysts and brokers, was the result of a mid-session profit booking by FIIs that may have been prompted by the Hang Seng’s (the Hong Kong exchange’s benchmark index) 720-point fall and buzz in the stock market that the Reserve Bank of India was considering raising the balance banks need to mainatin with it, a move that will reduce liquidity in the system.
FIIs bought equities worth $1.39 billion (Rs5,532.2 crore) in the two sessions leading up to Wednesday and $4 billion in the past four trading sessions. Net investments by them stood at $13.6 billion on Monday.
Over 20 foreign funds have acquired FII accounts from stock market regulator, the Securities and Exchange Board of India (Sebi), in September. The list features some first-time investors, but also includes new funds from large investment houses such as Citigroup, Merrill Lynch, ING, Apax Partners, Allainz, Deutsche International and J.P Morgan.
“The key point is that Asia as a whole is now the most important destination for global asset allocators,” says Jon Thorn, the Hong Kong-based hedge-fund manager, who looks after the India Capital Fund, an FII.
India’s Sensex was the best performer in Asia. Since Monday, the Sensex has gained more than all other Asian markets (Indian exchanges were closed on Tuesday).
“Within Asia, more wealth is flowing to India,” adds Thorn. “It took a while for many global fund managers to understand that India and China are emerging as the strongest markets across the world. This is why we see many new funds setting up base in India. Secondly, many global fund managers, who maintain an Asian portfolio, were underweight on India. Suddenly, money is flowing in to adjust this weight, as India is seen as the most secure market within Asia,” he says.
The swing in the Sensex, between a low of 17,288 and a high of 17,953, comes on a day when finance minister P. Chidambaram advised retail investors to exercise caution. This comes in the wake of a similar warning he issued to investors last week.
On Wednesday, the Sensex went up to 17,953 around noon before dropping to 17,626. It again rose to 17,700 before plunging to 17,288. Then it swung all the way back to close at 17,847.
Interestingly, six of the 30 stocks that constitute the Sensex—Reliance Energy, ICICI Bank, Infosys Technologies, ONGC, Tata Steel and Reliance Communications—account for almost 50% of the Sensex’s gains since it crossed 17,000.
An executive at a brokerage downplays the significance of Chidambaram’s warning. “It was just a customary statement from the finance minister to protect small retail investors who may be tempted to enter the market at this level,” says Divyesh Shah, chief executive of domestic brokerage Indiabulls Securities Ltd.
“The fact that the market gained significantly at the time of close even after the intra-day profit booking by FIIs is proof that the FIIs are still buying,” he adds.
Still, Shah, too, has a note of caution for retail investors. “At current levels, it is a traders’ market.”
PTI contributed to this story.