AS FIIs SELL WHAT SHOULD INDIAN INVESTORS DO?
By Ruma Dubey
FIIs offloaded about Rs 2136 crore worth equities on 20th June, highest sell-off since 13th May’11 which was much higher at Rs.3706.4 crore. FIIs have pulled out a staggering Rs.29,191 crore, which is over US$ 5 billion from the Indian debt and equities in less than a month due to weakness in the rupee. Though FIIs pulled away Rs.5028 crore in June , the total FII investment in India by FIIs in the equity market currently stands at Rs.78,176 crore or US$14.5 billion. The word on the street is that if FIIs sell off continues at this spate, the Nifty will breach 5500 mark soon.
In HDFC, 73.67% stake is held by FIIs. And a lot of investors and traders are worried that with such a high FII stake and with FIIs on a selling spree, HDFC is also expected to see a massive sell-off. Some 180 stocks have hit new 52-week lows. And all this on worry that FIIs are on a selling spree and it will only increase as the rupee continues to fall. There is now talk that the rupee could down to Rs.63 levels. So is this a disaster, a deluge of massacre and debris which threatens to drown the markets, like the one in Uttarakhand?
Well, it is not exactly panic times; it is not the end of the world. Firstly, FIIs will not exit en masse from India and certainly not from a royal, blue chip like HDFC. The day that starts happening, yes, then it could mean that India’s growth story is getting dicey. Today though the entire market is streaked in red, HDFC is holding its own, staying in the green.
Stocks which are seeing a massacre today are those in realty, infra, capital goods, jewellery, textiles and mainly companies which have very high debt, both domestic as well as foreign debt on its books. This means that even though there is a selloff, it is not random and across the board; it is very sector and circumstances specific. The current selloff could be by FIIs who have entered markets or made major commitments only recently and for them the rupee depreciation is eating off a huge chunk of their yields, thereby forcing them to sell. But those who have come to India for some years now and are here for the long haul feel that BRIC story remains intact. In fact, in an interview with Bloomberg, London-based chief investment officer for international and emerging markets equity at Goldman Sachs Asset Management said that BRIC markets have underperformed for a couple years now, they have been left behind as the world equity markets moved ahead and thus finds value there. Three of the top profit making funds in the emerging markets keep their belief intact and stated that it was time to buy Philippine retailers, Chinese Internet companies and Indian pharma companies.
Let’s face it – what we are witnessing now and in the weeks to come would be the adjustment to this new scenario of life without QE. When any bad news is broken, it takes a while for it to settle down and get accepted and till that is done, we see hysteria and unreasonable behavior. That is precisely what we are witnessing today – an adjustment to the future. This had to happen one day or the other and it is best it is happening now – at least this uncertainty will be gone and we can look at ‘real’ growth without the crutches of stimulus.
So what do investors do in this current volatile scenario? One does not know, at this point of time the amount of pain or ‘adjustment’ pending in the system. Till all that is spent, the selloff will continue. If you have limited cash, best to sit on it till the situation abates. But if you have cash and do not look at day-to-day capital preservation, then its best to identify very sound companies and invest at every decline- like a SIP in select stocks. Build a strong portfolio for the long term.
Do we follow the FIIs? You and they are in two completely different situations and would be foolish to merely do what they do. FIIs have peer pressures to follow their herd but we do not. Warren Buffett has often talked about the “institutional imperative” where like a herd, investors follow each other, even if they know it is not logical as they do not want to “miss out”; not having the guts to take contrarian calls. This is ditto for FIIs and as well as DIIs as both are following their own herds. And that also probably explains why mutual funds are not really fancied by Indian investors.
And we as independent, intelligent investors do not have such peer pressures to follow any herd. So do not follow either the FII or the DII. Do your own home work and take a well informed decision. After all, you make your own destiny, not by blindly following the path of others.
These are trying times and things look dark, muCh darker than what it was in 2008-09. But then it is always the darkest before dawn breaks…..