Forex

“In building a business, one should never believe in excessive highs and lows.” These words from the CEO of a renowned US-based foreign fund house would perhaps best reflect the attempts to put up a brave face in trying times.

On Tuesday alone, foreign funds sold shares worth Rs 702.50 crore. On the same day last year, FII money was pouring into Indian markets.

Jubilation seems to be giving way to panic amid concerns of more crises in the US credit market and a fluid political scenario weighing on investor sentiments.

“Money is flying out of emerging markets and inflows into India have been negative so far,” said Madhavi Vora, managing director, ULJK Securities a Mumbai-based broking firm. “There is a major liquidity crunch along with other external factors like political uncertainty that are ailing markets.”

A depreciating rupee seems to be playing the spoilsport these days. While the FIIs had made incremental returns last year with substantial appreciation in the rupee against the dollar, with the rating agency Fitch lowering its rating on the country's local currency grade outlook, FIIs look like in a hurry to hit the exit. A currency downgrade would mean increased risk to investors overseas investors as the value of rupee-denominated asset declines in line with the Indian currency.

“The downgrade was mostly expected due to high fiscal deficits the country is running. A few other rating agencies may also follow Fitch. The sentiment is very negative and we need something really positive like political stability or a fall in crude prices to save the markets,” said Dinesh Thakkar, managing director of Angel Broking.

Nearly seven months into calendar year 2008, the FIIs have already pulled out more than a third of what they invested in the whole of last year. As on July 15, 2008, FIIs were net sellers of Indian stocks worth Rs 28,048 crore (Sebi figures added to the NSE provisional figure for Tuesday). They had pumped in Rs 71,486.50 crore during 2007.

Domestic institutions, however bought stocks worth Rs 283.4 crore.