New Delhi: The Indian Stock Markets have experienced numerous fluctuations over the past few months due to the fluctuations in behaviour of foreign investors. Once foreign money left the Indian shares in large numbers putting a strain on the market. Subsequently, some relief was experienced as evidence of the reentry of foreign investors. This state of affairs has raised the eyebrows of a good number of people wondering what exactly is going on in the Indian stock market.
Foreign Investors Current State
This year, it is seen that foreign institutional investors and foreign portfolio investors sold Indian stocks in exceedingly high volumes. Over the years, almost two lakh crore rupees were withdrawn out of the market. This selling depended upon a large number of significant areas. Some of the worst hit were information technology, FMCG, power, healthcare and consumer service. Due to this excessive selling, share prices in most companies dropped and this weakened the market.
The IT industry was the most affected because the foreign investors liquidated a lot of technology shares. Heavy selling was also experienced in the FMCG and power companies. Neither were the other sectors such as real estate, financial services and automobiles. The analysts think that foreign investors were not disappointed in India but they were seeking superior opportunities elsewhere.
A large cause of this selling was due to global market markets such as United States having better returns. People will always want to earn more profits and when other countries offer more money, the money will flow in those countries. The other reason was that Indian stocks were now expensive due to an extended period of increase. Due to the high prices, the foreign investors concluded that they would book profits and wait until the prices attained better levels to invest once more.
The contribution of the domestic institutional investors was very significant when foreign investors were selling. Shares were still being purchased by Indian mutual funds, insurance firms and other local investors. Their purchasing assisted in curbing the declining market. There were also days when domestic investors had bought more shares than foreign investors sold them. This indicated good faith of Indian investors in the economy of the country.
This backing of the domestic investors enabled the Sensex and Nifty to remain stable even in the hard periods. It is estimated by some professionals that the market would have dropped even further in the absence of domestic purchasing. The transformation also indicates that Indian investors are strengthening and gaining confidence.
Around the later part of the year, things began to change gradually. Foreign investors started showing interest back in Indian stocks. One was due to the Indian rupee stability. Where there is stability in the rupee, foreign investors will be comfortable since they will be making fewer losses due to exchange rate losses. Foreign investors as a result of this started to buy having sold after many weeks.
On certain trading days, foreign investors continued to sell shares but the domestic investors purchased a larger sum than that. The market was driven to the upwards direction by this balance. The foreign investors continued to be net sellers and the domestic investors were large buyers throughout the entire year.
Analysts also indicate that there are foreign investors who moved the money on new shares issues rather than stock market. A lot of new public offerings were introduced by companies and foreign funds were invested there. This minimized their investment in normal stock trade as well.
Most market players believe that the future is bright. They feel that the foreign investors can come back with more vigour in the 2012 year. Lower interest rates that might be possible in the United States, improved profits of the company in India and fairer stock prices may bring in the foreign capital once more.
The economy of India is continuously expanding, and the performance of companies is stable. It is due to this that long-term investors are remaining positive. Analysts would recommend investors to remain composed, not to panic and look at the long term targets as opposed to the short term market fluctuations.
Conclusively, despite the high rate of withdrawal of foreign investors in the past years, the Indian market remained stable due to the high patronage of local investors. The fact that the foreign buying is coming back now gives some hope that the confidence is slowly returning. In cautious measures and favorable global trends, the Indian markets can have some improved days ahead.
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