Skip to main content

FII FLOWS RUNNING THE MARKET






Indian rupee has seen depreciation in the last 3 months at a rate that has confused most of the market players and analysts. If we think rationally, looking to the deep financial crisis in the USA, the value of USD should depreciate against the currencies of the countries with sound financial systems that are less impacted by the global turmoil. But ironically, INR has depreciated by more than 23 per cent in the last 9 months.


There may be many reasons for the depreciation in the Indian Rupee, but if we analyze the movement of SENSEX vis a vis INR, we found some pattern in the movement. The SENSEX touched a record high of 20873.33 on 8th January 2008 and INR touched a record low of 39.2650 on 15th January 2008. It is quite evident that the sentiment in the Indian Equity market became very bullish after the FII funds inflows were very strong and SENSEX rose from a level of 4500 in early 2004 to 20800 in January 2008 (Less than 4 years). But due to the current Financial Market Crisis, the FII flows have reversed and an outflow of Rs 37000 crore was done from the Indian Equity market . FIIs have been the drivers of the market till now, and they will be the crucial in future too. Since January this year, Rupee has also started depreciating and main reason for the currency movement can be attributed to the loss of confidence in the equity market and the resulting FII outflow.




Comments

Post a Comment

Popular posts from this blog

SERIOUS LESSON LEARNT FROM THE CRISIS

Last 6 months in the market is so turbulent that I had to unlearn whatever i have learnt from ny experince as an investment management professional as well as a student in the B-School. All the theories about risk free securities, equity risk premium, efficient market hypothesis, risk management systems have not worked in these turbulent times. Even the regulators are totally confused. Only in the second quarter of 2008-09, inflation was considered to be serious threat to the economy and crude oil pricees were soaring high and expert analysts were talking about crude going to USD 200. In a bid to save the Indian economy, RBI decided to solve the problem through monetary tigtening as the textbooks on economy suggests. Banks were worried about their profit margin due to treasury losses. I as a trader in bond market was also making losses on my trading positions. But came September 2008, that will be remembered by all the people who are not even directly interested in Financial markets.In...
1 comment
Read more

THE FINANCIAL CRISIS:

THE FINANCIAL CRISIS: As the US lawmakers and the FED are busy in making strategy for the bail out from the severe financial mess and the worst crisis since the great depression of 1930’s, let us try to diagnose the genesis of the crisis that has triggered worldwide financial instability: There may be many economic and fundamental reasons behind the current crisis. But the seeds of the problem were sown in the aftermath of 9/11 attacks, when Greenspan lowered the interest rates in order to fight the slowing growth. But, low interest rates coupled with government populist policies that generated demand for housing and other consumer loans. When demand rose, the housing prices soared to a record high and at a speed that was totally absurd. At the same time, default spreads in the bond market also diminished to the historical lows. In the second stage, these housing mortgages, were bundled into mortgage backed securities and were traded thereby shifting more and more risk on the last hold...
Post a Comment
Read more

HAVE WE LEARNT ANYTHING?

Beware. Once again experts are prowling for their prey. People are being given tips to make easy money. FII flows are coming to the equity market and market is zooming targetting new highs as if there was no problem last year. Sensex crossed 17000 and new targets were set on business news channels luring people to again invest in the stocks. Mutual fund sales pitch increased and new schemes are being launched. But does the situation is so goody- goody? In my personal opinion, again this is exuberance and experts are betting on greater fool theory.The greater fool theory (sometimes the bigger fool theory, also called survivor investing) is the belief held by one who makes a questionable investment, with the assumption that they will be able to sell it later to "a bigger fool"; in other words, buying something not because you believe that it is worth the price, but rather because you believe that you will be able to sell it to someone else for an even better price. Today most o...
Post a Comment
Read more