FIIs – AJEE ROOTH KAR AB KAHAAN JAAIYEGA….

Yesterday, the markets crashed because it was expecting a stimulus and rightly so, it has been denied.

So the market, being the complete spoilt brat that it is, pouted and sulked and fell over 580 points.

Now today, there is talk of the Govt rolling back the “inadvertent” super-rich tax it levied on the FIIs. Not surprising, there is a bounce back.

When you look at the market behavior as an outsider, it does make you wonder nowadays whether fundamentals rule the market or its pure sentiments only, that too only FII sentiments. Yesterday, all the talk about growth faltering, unemployment, gloom and doom was all that we could see and read and today, suddenly, everything just vanished in a whisk as news of the FIIs tax getting exemption started marking the rounds.

Thus the way the market functions today is – give me something, give me all the attention, spoil me, pander to my needs or else I will crash!

We have one puzzling question – FIIs have been sellers. From 1^st August till 22^nd August, they have been net sellers to the tune of Rs.10,656 crore. On the other hand, DIIs have been net buyers, during the very same period to the tune of Rs.14,599 crore. In fact yesterday, when the markets crashed 587 points, FIIs selling was at the end of the day stood at Rs.903 crore while DIIs bought equity worth Rs.1719 crore.

There is more- in July FIIs sold a net of Rs.16,870 crore while DIIs were net buyers at Rs.20,394 crore. The trend is same all the time, whenever FIIs sell, the DIIs are buyers and buying more than what the FIIs have sold. Yet, the markets crash and we hear talk only about FIIs selling because they are unhappy about the super rich tax.

When DIIs are net buyers; they are buying more than what the FIIs are selling, yet, the markets fall. Doesn’t this mean that the DIIs, despite the growing money power have no sway over the market? They help mitigate the selling impact of the FIIs to some extent but despite buying more than the FIIs, they enjoy no or little clout. They most certainly do not have the kind of influence which the FIIs have; do you think that consistent DIIs selling will force the Govt to roll back any tax imposed on mutual funds? Or for that matter, with DIIs being net buyers, will they get benefits or can the Govt take a stand and say that what the FIIs think does not matter?

Well, as we know, the answer is a big “NO” to all the questions. FIIs continue to hold the market and the Govt enthralled and what they need and want matters more than anything else.

Will DIIs ever be able to replace this clout of the FIIs? That’s a day we all would eagerly wait for but it could take a long while. Though DIIs are pumping huge amount of money into the domestic equities, still they cannot absorb the foreign inflows. As more and more of household savings start flowing into SIPs and mutual funds, only then will we see their influence go up. Even in these uncertain conditions, savings traditionally find their way into physical assets and only when that mindset changes can we expect DIIs to grow bigger than the FIIs.

It is a generational change we are talking about but it will happen. Till then we have no option but to fuss and fret over upset FIIs.