The Hindu : Business : FII interest fails to bolster bourses

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Monday, Feb 21, 2005

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Business

FII interest fails to bolster bourses

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DESPITE A sharp increase in foreign institutional investor activity, the Sensex ended lower last week, cutting short four-week winning streak, as operators played spoilsport by taking profits throughout. Profit taking emerged after the index touched a high of 6719.20 in intra-day on February 14. However, the undertone of the market remains positive on hopes of a market-friendly budget for 2005-06. The inflation rate based on the wholesale price index too has eased to 5.01 per cent for the week ended February 5 from 5.25 per cent in the previous week. This is the tenth consecutive weekly drop in the rate.

The BSE benchmark 30-share index moved between 6719.20 and 6532.50 before ending the week at 6584.32 against the previous weekend close of 6633.76, a net fall of 49.44 points. Among other indices, the broadbased BSE-100 index dropped by 34.38 points to 3551.07.

Foreign institutional investors continued to be aggressive buyers during the week. They recorded net purchases of Rs. 2,394.10 crores during the week.

According to the figures released by the Securities and Exchange Board of India (SEBI), their net purchases have crossed the Rs. 6,800 crore-mark and touched Rs. 6,853.10 crores in the month till February 18 as compared to Rs. 1,246 crores in January.

Despite this dramatic increase in FII activity, operators who are holding high outstanding positions and retailers remained cautious, preferring to reduce their commitments in the absence of any clear indications on the budget proposals.

Stiff opposition by the Left parties to banking reforms ahead of the Union budget seemed to be the prime factor for domestic investors turning heavy sellers. The Left parties have charged the UPA Government with deliberately meddling with the independent role of the Reserve Bank of India in fixing norms on foreign direct investment and voting rights in private sector banks.

Meanwhile, the market has discounted reports that the Life Insurance Corporation of India is likely to step up its market exposure to ten per cent of its investible funds from 7-8 per cent now.

During the week, the volume of business on BSE and NSE was relatively low at Rs. 11,037 crores and Rs. 23,355 crores against Rs. 12,108 crores and Rs. 25,080 crores a week earlier.

The Jet Airways IPO, which opened for subscription on Friday, received good response on Day One.

Rupee under pressure

The central bank's intervention through dollar purchases by state-run banks and dollar demand from oil corporates kept the Indian currency under pressure for the second straight week, despite rising trade and foreign fund inflows amidst a lingering weak dollar overseas.

In choppy two-way trade, the rupee ended at 43.84/85 a dollar, lower from the previous weekend close of 43.82/83 after dollar demand from public sector banks pulled it down from the early peak of 43.65/67 struck on February 14.

Interest rates steady

In the absence of any fresh trigger, interest rates remained steady during the week. The ten-year government security was traded at 6.47 per cent and the five-year security at 6.30 per cent.

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