AppId is over the quota
Those who were caught by surprise by Friday's sudden rally on the bourses would be glad to hear that the sharp pick-up was backed by lots of hard cash being unlocked by foreign institutional investors. Once again the cheer leader was Infosys which found a new fan in a Japanese FII which is reported to have bought nearly 4.50 lakh shares of the company's stock in the past week.
According to well-informed circles the Japanese FII may have more appetite for the stock and Infosys could continue to lead the index higher in the coming days. However, more important than Infosys' rise is the fact that Japanese portfolio investment has made an entry in the Indian capital markets. All through the evolution of Indian markets, we have seen American or European money pouring into Indian stocks.
While Japanese are extremely cash rich with negligible cost of capital, they had stayed away from Indian markets until now. If the entry in Infosys is any sign of things to come, we could see big flow of Japanese portfolio funds into India. That, coupled with regular FII investments, could set a new trend in the markets here. While the fear of the approaching July 2 deadline for rolling settlement is palpable, it needs to be understood that once the outstanding position is completely absorbed, supply of stock will have to come from strong hands only, either financiers or long-term investors.
Therefore, there would be no panic reaction to things like rumours because sellers are likely to wait for confirmation before selling their investments. Therefore, supply would be relatively constrained. That would, of course, mean that there will be smaller volumes and wider spreads. However, post-July 2, markets should show narrower movements than at present.
Last week was an eye opener in a sense. As the week proceeded, there were fears that large carry forward positions in stocks like ACC and Satyam would pull the market down as these had to be unwound ahead of their entering into the no-delivery period on BSE and NSE this week. As these stocks had very large outstanding positions on the BSE, there were fears that this may lead to panic sell off on the counters and the prices would crash. However, what happened on Friday was quite the contrary. Both the stocks closed with moderate gains.
This implies that either there was very big buying on these counters that enabled earlier buyers to square off their positions or the latter had enough cash to pick up the shares they had bought. Either way, the hangover of excess supply was easily absorbed. If that experience is repeated in the dozen odd stocks that are going into no-delivery over the next few weeks, the fear of outstanding positions on the bourses would be removed.
Another major factor has been selling by domestic funds, primarily UTI in the last five months. UTI has been a net seller on almost everyday for the past several months. That had increased the supply of stocks in the market, partially neutralising the positive impact of record FII inflows. We now estimate that UTI selling would come to an end sooner than later. This is because the US64 scheme currently has a book closure leading to no fresh redemptions. Also, most of the selling for redemptions and dividend payout have been completed. Thus, a big potential source of supply will be out of the market in the next few weeks.
The global scenario too has improved and a recent statement from Intel indicated that the demand for semi-conductors, the building blocks of computers, may be stabilising. This has raised hopes that the worst may be over for the high-profile technology sector. Consequently big-ticket technology names could attract some buying in the days ahead. All these add up to a rather positive picture for the markets and it may be the time to start making select investments now.
All these add up to a rather positive picture for the markets and it may be the time to start making select investments now.
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