‘Foreign institutional investors’ in India are in an exit mode and in a ‘no-holds barred’ avatar and are deploying all possible means — ethical and unethical — to fully redeem their investments, according to private equity industry sources. FIIs are now realising it is better to invest in the US and Japan, than risk losing money in an underperforming market such as India.
Foreign investors have hauled out an astounding Rs 29,191 crore (over $5 billion) from the Indian debt and equities in less than a month due to the failing rupee, according to the provisional data on FII activities provided by the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
What started as profit-booking in early 2008 accelerated into a massive sell-off following the collapse of US investment bank Lehman Brothers Holdings Inc., leading to a severe liquidity crisis. Most FIIs sold as their lenders, facing a cash crunch in their home markets, asked them to bring their money back. If this happens, the Indian companies are certain to incur huge losses, strangely for no apparent fault of theirs. Market factors can hardly be said to be in their control.
Investment analyst Akash Jindal said FIIs have every right to decide when they want to enter ansd exit from a particular market.
“The priority for the investor is to make money, to earn a profit. The investor will always be on the lookout for other places where there are higher returns,” said Jindal.
However, what is alarming in nature is the insider reports which reveal that FIIs have deployed investigative agencies to dig points of leverage in order to garner maximum mileage.
On this particular aspect, Jindal said that he was not willing to comment.
Lacklustre performance within the hedge fund industry has caused profit margins to shrink and that is taking its toll and reflecting in unpredictable behaviour.
According to the latest data, the number of registered FIIs in the country stands close to around 1,750. Many among them are seeing red and are in a mood to pull the plug on their investments.
Unconfirmed reports suggest big investment houses like Goldman Sachs, Morgan Stanley, JP Morgan, Mount Kellet, HSBC, Citigroup, Deutsche Bank AG and a few more have dropped hints at going for full redemption. If this happens, promoters like Kingfisher, Tulip Telecom, KS Oil and a few more are likely to spiral into chaos. Their stocks have already taken a nose-dive. Mount Kellett, a multi-strategy private investment firm, focused on global value, special situations and opportunistic investing, is already exhibiting signs of distress and exasperation, if industry insiders are to be believed. Interestingly, Mount Kellett Capital Management already has a flawed history. It found its name getting dragged into litigations in mid 2012 in two lawsuits. Both the lawsuits had the noticeably related concern in it of inappropriate stock dilutions, one in the case of Baja Mining and the latter in the case of Evoq Properties of Los Angeles.
Even though the investors doubt emerging markets, like India, as an asset class, it is difficult for FIIs to ignore Indian markets, and they may be acting in haste. Industry insiders report that most of the currency”s slide is over and inflation will cool off in the coming months and have advised patience. Finance Minister P Chidambaram has already said last week that there was no need to panic over rupee depreciation and assured investors that policymakers will take steps to curb volatility in the forex market.
Jindal said that India’s problem was its over-dependence on FIIs, and expressed disagreement with the view that investors doubt emerging markets, like India, as an asset class.
FII ownership matters a lot for stock price movement. Stock prices of most companies in which FIIs increased their holdings went up in January-March. All the top companies where FIIs cut their exposure during the quarter witnessed a fall in stock prices.
Disorderly exit and strong arm tactics by FIIs is the worrying factor, though. There is this small matter of accountability to consider. (ANI)