Raging Bull
FII fund flow is expected to remain strong
Niraj Bhatt & Amriteshwar Mathur / Mumbai November 26, 2005
The stock markets have covered the 1000-point decline of October and closed at a new high on Friday. If FIIs were the driving force in taking the Sensex to 8821 points on October 5, their sales of Rs 3,805 crore in October were also part of the reason for the Sensex falling 15 per cent by the end of October. This month till November 24, FIIs have brought in Rs 3,487 crore, which has led in both the Sensex and Nifty reaching these levels.
Though some brokerage houses told their clients that India was overvalued during November, foreign fund flow has only gone up. On the other hand, domestic mutual funds have taken a contrarian stance since October.
They bought shares worth Rs 2,905 crore in October when FIIs were selling. This month they have mostly sat on the sidelines, investing only Rs 363 crore till November 24.
The appetite for equities has gone up again and most markets are rising. Though this rally is driven mainly by liquidity, there are some discernible changes as compared to the October high.
Brent crude oil price, which was just below $60-levels then, has declined to the $52 levels. If the September quarter results were not exciting for many manufacturing companies, their outlook has improved as falling commodity prices will help in a reduction in raw material costs.
Some respite on the interest rate front is also expected as the US Fed may stop hiking rates in the near future. Stock prices have risen across the board, except in commodity companies like Tisco and Hindalco.
Ranbaxy has fallen 27.7 per cent from its October high as the company is mired with litigation issues. The dollar too has appreciated from Rs 44.28 in early October to Rs 45.81 now, which has resulted in technology stocks rising.
Unlike the October rally, this time it is the large-caps which remain the favoured lot. The BSE 100 and the BSE 200 are both slightly below their all-time highs but mid-cap and small-cap indices are still far. Going forward, FII fund flow is expected to remain strong. The Sensex is valued at a P/E of 17.33 on a trailing basis, which is high. Now, it is time for fundamentals to catch up with liquidity this quarter.
