MUMBAI: The Rs 4,279-crore that the foreign institutional investors (FIIs) have taken out from the stock market in the last ten sessions, is sending jitters down the spine of local investors, who now fear the pace of outflow could pick up further.

Institutional dealers said the nearly $1-billion net outflow by FIIs has come in despite any
big selling by exchange-traded funds (ETFs), who were the biggest foreign investors in the last few months of 2010. The main reason for ETF investment in India was the relative outperformance of the Indian market when it was compared with other emerging markets.

“Now that the Indian market is an underperformer when compared to its peers, I think it won’t be long before ETFs start selling,” said head of a local brokerage. “There is no reason for the money to remain here,” the brokerage head added. Institutional dealers also pointed out that a large number of hedge funds had invested in the Indian market through the ETF route, which are registered as FIIs. As a result, according to Sebi data, which also includes their investments through IPOs, FPOs and other equity-related instruments, over $10 billion came in the last four months of 2010.

“A substantial chunk of this money could be termed as hot money,” an institutional dealer said. Hot money refers to FII funds which target quick short-term profits and flow out of a market at the first sign of trouble.

The recent outflow, nearing a billion-dollar, has also led to a 8% fall in the sensex and a Rs 5 lakh crore fall in BSE’s market cap. And the worst hit are real estate, banking and metal stocks.

And now, dealers say, the fear of heightened outflow could drive some of the traders and speculators out of the market, leading to a vicious cycle of slide on the bourses.

Source: Times of India

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