FII inflow drying up

The buzz around the markets was that FIIs were selling hard to subscribe to the Coal India IPO and so the Nifty tanked. Right? Wrong! The FII activity is charted here (smoothed):

The sales of FIIs was more or less in the same ball park but it is the FII purchases that has dipped. In hindsight, this is ‘explainable’. The QE2 being round the corner, the DOW going strong in anticipation, why would $$$ move out? That QE2 is widely expected to add fire to the US markets like QE1 did, this trend of FII inflows into EMs including India ought to logically continue. Any spare cash would go directly into CI. Though I am suddenly getting the feeling the CI QIB segment may not get the 4-6 times over subscription that’s been touted. We’ll know soon enough!

The DIIs have continued to sell as is known. Here the new question is, will they continue the pace of selling, now that CI IPO is at hand?

The FII and DII nett charts are here:

The overall Nett chart looks like this:

As can be seen, the dip corresponds to the Nifty dip and rebound. Thus the $Mn questions are:

1.    Will FII inflows continue to slow?

2.    Will the DII sales continue at the same pace?

I think those are questions for Paul the Octopus to answer but we can make (un?)educated guesses! The answer to the first question in mind is Yes, FII inflows will abate – at least for a while for reasons mentioned in the 2^nd paragraph.

The DIIs started selling long before the CI IPO was announced. Thus the pressures for DII action can scarcely be said to have abated. Now that a dip has been witnessed, retail participation can be expected to continue to be sluggish, at best. Couple that with the results season being upon us, the ‘sell-on-news’ syndrome would also have an impact.

On balance, the 8^th Oct 2010 blog where I said that the Nifty has set up for correction holds sway. The bump up today (18^th Oct) was expected as will others along the way. But the main trend remains, technically, down. Sell the rise. No doubt, we could see plenty of counter trend bump ups and the Futures trader would be wise to swing trade with the indicators. There should also be some steep drops, as any bear market would witness.

The time for LT investments in stocks is some distance away, though we could well see the usual tipsters’ ‘buy’ calls. Risky. That’s what I’d say!

Trade safely! And don’t forget to ask Paul the Octopus!

Real time trading tweets at: @niftygroup and for everything else; @jsvasan