Mumbai: Investments in equities have reached a full circle for foreign institutional investors (FIIs), the main drivers of domestic stock markets.
FII ownership in Indian stock markets dropped to 15.5%—levels last seen in December 2003, which were early days of the big bull rally that climaxed in January 2008 when Sensex the benchmark index of the Bombay Stock Exchange reached its lifetime high of 21,206.77 points.
The index saw seven-fold rise from about 3,000 points to more than 21,000 points between 2003 and early-2008, the biggest bull run in its history. It ended with a 52% slump in 2008, as global investors fled from high-risk equity assets, hit by a worldwide financial crisis. “The (ownership) level is almost of an age gone by,” according to a mid-February India strategy report by equity analysts at Citigroup Global Markets India Pvt. Ltd. The value of FII ownership in Indian stocks, however, is much higher than what it was in 2003. Citi analysts estimate the value at about $94 billion (Rs4.84 trillion).
In December 2003, Sensex was at around 5,000. On Friday, it closed at 8325.82, gaining 1.56%, after it had dropped to its lowest level in more than three years on Thursday.
FIIs sold more than $13 billion worth of Indian stocks in 2008, after investing $17 billion in 2007, betting on the decoupling theory, which said that the Indian economy will be resilient to the outside world.
The theory was proved wrong in 2008.
In 2009 so far, FIIs have sold another $2.1 billion of Indian stocks, driving the benchmark stock index down 14%.
“FIIs had started a buying trend around December 2008 and early January, but the Satyam episode reversed the trend again,” said Nirmal Jain, chairman of publicly-traded domestic financial services firm India Infoline Ltd.
B. Ramalinga Raju, chairman of Satyam Computer Services Ltd, India’s fourth largest software exporter, on 7 January confessed to a Rs7,136 crore fraud. India’s large fiscal deficit is seen as a big worry. According to Jain, FIIs could review their India strategy after the new government takes over in June.
Domestic institutional investors, including mutual funds, insurance firms and banks, now own more than retail investors. Citi analysts view this as a sign of Indian markets attaining maturity.
Retail investors now have only 50% ownership of what they used to when the bull run began. While insurance firms have increased their stake by 1% in 2008 to 5.04%, the mutual funds’ stake remained unchanged last year even as these funds are sitting on cash of about $4 billion.