Indian Stock market listens to FIIs

 It is very interesting to look at the divergence in the activities of the Foreign Institutional Investors (FIIs) and Indian Mutual Funds in the last 6 months.

 The monthly activities of mutual funds are given below in the table:
 

 The mutual finds have been accumulating the stocks in past three months. They have a sold moderately in the months of Sep 07 and Oct 07. They have generated funds for investing in the stock market by selling in the debt market an almost equal amount. The volumes are too small to have any impact on the interest yield in the debt market.

Now contrast this with FII activity that is given below

They are net sellers in three out of the last six months. They have been selling rather continuously since mid January 08, ever since the Sensex and other indices peaked in the Indian Stock Market. There is a mismatch in terms of volume of net activities of FII and the Indian Mutual Fund. However the fact remains that there has been lot new investments into the stock market in this period as seen by the resources gap around Rs.4,000 Crores have come from the retail sector.

Can this divergence in views and continued investment from the MFs and retail sector continue?

Not for long!

This is a difficult question. A part of the answer can be seen if we look at the savings flowing into MFs. A recent news item reads that the

“Assets under management (AUMs) of mutual funds have declined by Rs 827.2 crore or 0.15 per cent as on January 31, in comparison with AUMs in December 31, 2007, after a severe liquidity crunch in the markets forced banks and corporate bodies to withdraw money from liquid funds.  This is the first time in the last two years that AUMs have actually fallen.  The total AUMs stand at Rs 549114.82 crore as of January 31, down from Rs 549942.02 crore as on December 31, according to data released by the Association of Mutual Funds of India (AMFI). “

Some funds have done better than others. But the fact remains that primary issues are peaking in the very same.

What is the message?

Investors need to highly careful of the what they invest in IPOs. The traders have think twice before going long even in index. The turbulence in the market is likely to remain with the tax season end date, March 15 approaching. Therefore, investments can wait for a bit longer and investors can get a price that ever foresaw.