Czar said:
-ve's for the Fii & few reason to ventures pull out's with making zero value:
1) the falling Re. is doing more damage to fii investment than we are imagining
2) profit booking by 1 fii is going to trigger a chain reaction nobody will want to leave empty handed
3) what all observations by dada are failing to say is that if 70/80 % fii are long termers, like they buy & are here to hold whether there's bull or bear market for minimum 10/20 years (yes there are creatures like these)
4) that leaves with the hoards who joined the party late & they will pull out fast as situation worstens & believe me when I say they will pull out no matter what, see not all are worried about what dada mentions about cracking the market by pulling out, they dont care, if the scenario world wide is becoming gloomy, profit or loss, pull out is imminent...
5) loads of operator money which entered through fii mask will exit... they entered rigged the market & will leave when they decide game over.
many other reasons but I think these are sufficient to put enough gloom..
Hi czar
This is a famous tectics to play on the psychology of doomsday scenario when there is a chance to force more weak hands out of race. This tries to multiply the effect to extract maximum advantage out of a situation.
Let us see one by one the arguments with practical examples as far as possible.
1. If FII has take a stock at 240 and now it is at 340 that's 100 rs upside.
(all
assumptions)
in dollar term 240/45=$5.33(at the time of purchase)
340/46=$7.39(at current value)
if dollar moves by 50 paise
340/45.50=$7.47
340/46.50=$7.31
if prices fall by 100 Rs due to sell
240/45.5=$5.27(if prices fall)
Well then they shoot themselves in foot by selling rather than worrying.
2. Yes , Now at this stage there are investors who would have been sifficiently warned. So selling by FII will be met by no Buyer situation at this stage.
Let us see one FII hold 99 shares in a company where outstanding is 200 shares. 70 shares are owned by promoters.That's less than 50% holding but enough to have a say.
31 shares are outstanding. Assume they sell 50% i.e.49 shares.
What happens?
Now either promoter will have to pick up or see a free fall in current situation.
20% circuit breaker for price at Rs. 240.So CMP 192.
Next day same story.CMP 153.6 and retail also join the bandwagon.next day another 20% as all want to sell and czar is not yet coming to rescue.
Why because he is not sure of valuations. so CMP 122.
On day four another 20% CMP 97. By end of day four they are down to 240% .
Assume they are able to sell 50% of the sale quantity i.e.49/2=24 shares.
They are stuck with 50+25=75 shares
at CMP=75*97=7275
at purchase price=75*240=18000.
They manage to reduce the value of holding by 10800 without being able to offload. Just check the statistics of how many stocks hit ciruit breakers in the black days.This is impact cost which will hurt them more . I don't know other operations on options side which would be used to protect their looses. Somebody can throw light on this.
Now the total holding of FIIs in India will be 1% of total fund allocation.They can easily afford to do that and forget their money.These one percent is 100% of any particular portfolio whose value will be zero and investor confidence in those fund manager will be zero. So other portfolio serviced by that particular fund may also suffer. So the domino effect will be devastating to them.
India might be a sober market without them but a growing market with doors shut for them.
3. more than 80% of FIIs are long termers. It has been the underlying idea in my post and always and implicit in my arguments.
4. Hot money, smart money , hedge funds may pull ouy no matter what over the next year when Fed Rate goes up to 6%. The point is how much of FII is constituting of such monies.But then that should be good for the market and other FIIs .
5. Operators entered the market and yes ramped up the prices and exited in May 2006. What we are witnessing is aftereffects, global worries on many counts and trickling of FII inflow. We are ending with net inflow for the first half anf positive inflow for the June 2006. Leaving May 2006 as month of net sell by FIIs. Worst should be over in few days time and it will be the time to go back to basics and invest when money, comfort level, Fundamentals and technicals permit.FIIs are not going anywhere.
In fact if we continue to grow at 8.4 percent and increase our export to USA we will see demand from USA to make rupee stronger. We are yet to take full advantage of Globalisation. China is in trade surplus with USA and they have taken full advantage of their entry to WTO. Our growth lies in our hand. If we stop growing no matter what we do, nobody will come to us.I know that at present we are growing. Few concerns are there including Fiscal deficit, BOP(china has surplus and we are in deficit). These things will have to be tackled head on and one day Govt of the day will be faced with that situation .
But for now let bernanke speak.
Pankaj