FII monthly sales hit an all-time high

MUMBAI: Foreign institutional investors sold Rs 6000 crore of shares in the last two sessions. They have thus been net sellers in 7 out of the last 10 sessions.

In August so far, they have sold shares worth Rs 9,120 crore, the most in a month -- ever.  Also, for every rupee of FII sales since the July 24 Sensex peak of 15795, investors have lost Rs 44.

That’s because the market capitalisation fell from Rs 46.13 lakh crore to Rs 41.74 lakh crore. What adds to jitters is that when the Sensex fell on Tuesday, it fell below the psychological 14000 mark - for the first time since May 15.

A firm overnight closing by the Dow and strong Asian markets did not help matters at all. In fact, the Sensex ended Tjesday as the biggest loser in Asia.

Political stability is very crucial for market stability, said Anil Advani, head of research, SBI CAP Securities.

“The market is not over-reacting but it is worried what is happening in the political and international arena. Indian markets have been the biggest underperformer. It is difficult to predict how long and how deep the correction will be,” he said.

The best strategy at the moment is to wait and watch, he suggests.

While the market was on a steady decline throughout the day, it took support around the 200-day moving average (DMA).

The Nifty closed at 4074, just above the 200 DMA of 4065. Experts say this will be a crucial level to watch. Many of the frontline stocks are trading around their 200 DMAs.

Most markets around the globe have taken support from these levels and have bounced back, said Sunil Jain of Edelweiss Capital.

But this level may not hold long. "There is lot of pain left. Monday's pullback was basically a bull trap, aided by short covering. This saw a number of single-stock futures moving into premium. But, on Tuesday, we saw a lot of unwinding happening since morning, paring the premium on the stock futures."

Sunil sees the market falling deeper on Wednesday as there's still a lot of painful positions waiting to be unwound.

The Nifty August 2007 futures settled at 4060.05, a discount of 14.85 points as compared to the spot closing.

Another indicator from the futures market seems to be implied volatility (IV), which is hovering around the 39-40% levels.

A high IV refers to the uncertainty among market players about the market direction.

Whenever the market lacks direction, IVs tend to be low.  "This is the first time since the May 2006 crash last year, we are seeing such high levels of IVs. That's why the option premiums are also less.

This indicates the lack of conviction about whether the market will tumble or stabilise from this levels," said Siddarth Bhamre, fund manager, Angel Broking.