Having lost 256 points during the day to close at 9,957, a crucial psychological barrier has been breached.
MUMBAI: The stock market was poised precariously on Tuesday, with the BSE Sensex breaching the 10,000 mark on a downward trip. Having lost 256 points during the day to close at 9,957, a crucial psychological barrier has been breached. This is the first time the Sensex is closing below the five-figure mark since February 17, 2006.
The cat-and-mouse game being played by foreign institutional investors and mutual funds has entered a decisive phase, with the latter, who were largely buyers when the FIIs began selling after May 10, running out of cash. A tell-tale sign of this came last Friday and Monday. Even as FIIs bought shares worth Rs1,211 crore, the mutual funds sold Rs526 crore worth of paper. Clearly, the latter want to build up their cash reserves again — just in case investors start panicking.
The FIIs continue to buy occasionally to prevent a market rout. But hedge funds, which tend to enter and exit markets in a jiffy, are another story. “Hedge funds are not married to any market,” said Rahul Nangalia of Nangalia Stock Broking. “They pull out whenever they feel some place else is more attractive.”
In this scenario, mutual funds are face a tricky situation. If the market tanks, investors may rush to redeem units. If it rises, investors may still redeem believing they have recouped recent losses.
The national head of an asset management company said, “Some large companies with substantial investments in certain mutual funds schemes have started pulling out money.”
Retail investors have not jumped the gun, but that’s not to say they are not edgy. Asked whether redemption pressures are growing, Sethuram Iyer, chief investment officer, SBI Mutual Fund, said this hasn’t happened yet: “Whatever little redemptions we’ve had have been met through our cash positions. We have not had to sell stock.”
The FIIs are widely believed to be keen to see valuations come down to Sensex levels of 8,000-9,000 before they begin buying again. They sold a whopping Rs12,236 crore in 16 trading sessions from May 10, when the Sensex closed at an all-time high of 12,612. Since then, the index has dropped by over 21 per cent, lowering its year-to-date gains to just 5.95 per cent.
While some mutual funds still have cash to invest, the Rs6,909 crore of buying they did in the 16 trading sessions up to last Thursday has sapped them. The FIIs know this, and will thus have to play the sell-and-buy game more carefully now.
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