FII flow and rupee will dictate the trend in the market

Last week I met Pramit Brahmbhatt, CEO of Alpari, UK-headquartered currency brokers to get an understanding of the foreigner view on India and its market. He told me that Alpari is closing its India operations. The reason: India was still too small for foreigners added to which the lack of consistency in its policies had made foreign investors reluctant to take huge bets on India. (India will not account more than one to three per cent of Alpari's overall book). With general elections about to start, the majority of investors prefer to wait and see if the new government gives them an opportunity to make money. Foreign investors, like domestic ones, are ultimately interested in growing their wealth. The reason why five years back everyone rushed to India and began opening at least a representative office here was because India was able to deliver returns. But today things are different.

Brahmbhatt recalled his own experience when he shifted from London to India in the middle of 2008 to start the India business. He bought a Rs 50,000 worth unit linked insurance policy (ULIP) from a foreign bank when the BSE Sensex was around 8,000 points and his ULIP was quoting at Rs 6 per unit. Today after five-an-a-half years the price of his individual units has grown to Rs 10 per unit, while the BSE Sensex has risen from 8,000 to 22,600. He has no clue why the insurance company hasn't been able to make money even when there are strict guidelines to invest in select stocks.

The reason is simple, barring the BSE Sensex that consists of 30 stocks the boarder market is still underperforming. The BSE 500 index which includes the 30 stocks of the BSE Sensex is still 7.5 per cent away from its all-time high of January 2008. Similarly the BSE Mid-Cap index and BSE Small-Cap Index are still trading 30 per cent and 49 per cent, respectively away from their all-time highs of 2008.

While everyone has hopes on India, the reality is that many haven't made money in the market. Despite this, if FIIs are investing is because there aren't many options in the world for them to invest. Unlike last year, when FIIs were shying away from India, this year interest in India is because many believe that the worst is over. Among the BRIC nations, India is well placed compared to the economic conditions in China and Brazil. Again, the crisis over Ukraine has seen investors staying out of Russia. FIIs are aware that the Indian economy may take time to catch speed, but at this point it looks more stable then many emerging economies.

In 2014, FIIs have invested close to $4.5 billion in Indian equities, while overall they have pumped in over $10 billion in Indian debt and equities. Though the FII money has gone primarily into frontline stocks, FIIs too are waiting for the election outcome. Hopes are that the new government will create the environment for growth. The next big push for the Indian market will be a stable government and a decisive leader at the centre. On Monday, April 7, the nine-phase Lok Sabha election begins.

Meanwhile in the coming week FII inflows will continue to dictate the movement in the market. The rupee will also play a crucial role in the Sensex's movement. On Wednesday, April 9, the March 2014 external trade data (import and export data) will be announced, while on Friday, April 11, the government will declare February 2014's industrial production (IIP) data. In January 2014, the IIP was at 0.1%.