|FII pull out causing market jitters?|
Is the fact that foreign institutional investors have pulled out nearly Rs 3,400 crore from the Indian stock market month-to-date in May a sign of things to come?
Over the last few months, even if one were to look at the numbers in the previous two months of March and April, there was a net FII inflow to the tune of Rs 7,213 crore and Rs 6,749.60 crore respectively, making FII's net investors of equity. So what has changed to reverse this sentiment? Many experts believe that the main factor for this pullout has been the tightening monetary policy with interest rates being hikes for the ninth time in succession. In turn, there is immense interest rate pressure on companies so FII's have been selling the stocks of interest sensitive stocks.
This argument is further substantiated since FIIs have been bullish on the money market continuing to be net buyers and helping boost the overall net investment to Rs 560.90 crore in May. Government securities are not only considered a safe bet, especially in uncertain times, but also give higher returns in a high-interest environment.
Taking all these cues under consideration in May the Bombay Stock Exchange's Sensex has headed southwards by three per cent to below the psychological level of 19,000.
But these negative cues are outweighed by the positive ones so the stock market is more likely to be range-bound this week. Most importantly, food inflation dropped to 7.7 per cent for the week ended April 30, the lowest level in 18 months which gives much cause for cheer. April figures also showed that Indian exports grew by an annualized 34.4 per cent to $23.9 billion in April.
Following the favorable election outcome there is a feeling that UPA-II could be better equipped to pursue long-pending reforms and bring the 2G scam culprits to task, while a Congress-led coalition will be able to push long-pending reforms in the financial sector.
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