No Need for Panic

No Need for Panic

4 Reasons why you should buy while FIIs sell


LET’S assume that you have invested in both, the US and the Indian stock markets. Now, it turns out, while your Indian investments are doing exceedingly well, the US portfolio suffers acute losses.


What is the most obvious thing you would do?

You would book profits in India, in order to make up for the US loss. Right?

This, in a nutshell, is the current scene today. The only difference is that the investors are foreign institutional investors (FIIs). These are institutions that operate mutual funds, hedge fund and portfolio management services abroad and invest the fund money in other countries. FIIs by definition, have world wide investments. So, not only India but other Asian markets are also facing a sell off.

What happens when FIIs sell?
FIIs have a huge exposure to the Indian market. Due to this, their buy and sell actions have a considerable impact on the market.


Recently, FIIs have been on a selling spree. This is one of the reasons for the markets to register steep falls.

If FIIs are selling, should you buy?

The US is in turmoil but there is nothing wrong with us. The following factors just reaffirm this:


1. Toxic securities (such as MBS and CDOs) are conspicuously absent in our market, thereby preventing us from catching the infection.

Mortgage Backed Security (MBS) and Collateralized Debt Obligations (CDOs) are securities which are backed by a pool of mortgages that are paid by home loan takers in the US. So, if a home owner defaults on his repayment, the MBS holder suffers. Read all about these instruments and how they caused the big collapse .


2. As far as domestic operations of banks are concerned, RBI has been extremely strict by continually increasing the risk weights to real estate and housing loans, thereby discouraging banks to get ahead of themselves, in a bid to increase business.

See: Why Indian banks are safe

3. Unlike the West which has a negative savings rate, our domestic savings rate is more than 35 per cent, that means, on an average, Indians save 35 per cent of their income. So, even if there is a protracted slowdown, we would still have considerable demand for products and services, which in turn will help the economy to achieve good growth.

4. Amongst all emerging economies, our export to GDP ratio is the lowest. This means that even if our exports went down, our growth won't be significantly impacted. Therefore, even a full blown US recession will shave only around 40 to 60 basis points off our GDP growth rate. So, we will still have the capacity to chug along at an 8 per cent plus rate.


India - a safe haven
The fundamentals of our economy make our market nothing short of a safe haven during such turmoil. So, I don’t care if the market falls to 9,000 or even lower. Once this storm blows over, things will be back to normal.

In the meanwhile, your fortune as an investor would depend on how you react or, rather, don’t react to the situation.


The great fall of the market isn’t going to suddenly reverse the quality of the companies listed. If anything, I am looking forward to picking up some cheap but quality stuff.

From MoneyControl.com

thanks, a very useful post...don't know much on India but will try to learn how everyhting's there

Sir can i know from where u know they are in profit here?????????
when they invested $ was at around 40Rs now when they exit its around 50Rs net loss of 25% only in currency???????? OMG
now when stocks reached at the rate of 2005 do u think FII are long term investors???
pls make it clear I am new to all these things .thnx in advance

most probably you are writing to some1 else, not me

dear sandeep,

one should not buy when fiis are selling, we should buy when prices are at throw-away rates.

will you buy suzlon @ 200rs as fiis were selling them at 150? now it's around 50-70rs..

we buy to make money, we sell to make money. not to be part of the "Good fundamental" thing.

Same goes with Reliance (RIL), my friend bought it at 2150, now it is around 1200, fundamentals are great.. but the loss????

agreed, that fundamentals are great of our country, but who has the "big" money to buy all the FIIs stocks???

The real reason investors buy shares is to "get dividend" - small regular profit from a profitable company for many many years; which is a way to get some income out of used money.

Traders, like me (most technical traders) will buy and sell for a profit, intraday, swing, or for a long positional trade lasting for a month or so. hence fundamentals and dividend yield means nothing compared to quick profit (and loss).

this is why companies like DishTV, TTML, and trader stocks, go up and down but if the investor buys them, then he/she'll be stuck with no gain whatsoever, and with any bad market scenario, the trader stocks will go down like stone in a well

ask them how much they have bought & how much they r planning to buy towmarrow.....?


Crap control required.