Stocks
Do FIIs buy high and sell low–III? Panic-selling during declines

FIIs usually put in their highest investments near the market peaks and are usually found to be chasing both market rallies. Do they at least steel their nerves and buy during market declines? Not quite. Here is some evidence over the last five years

On 9th April, the Sensex hit 18,206.61 during the trading day. The index had been falling all the way from 20,203 it hit on 29th January. Remember during January, FIIs (foreign institutional investors) had put in an investment of Rs19,198 crore, the third-highest ever. But instead of heading higher from that point onwards, the market had been declining. FIIs continued to buy during March, even after an insipid Union Budget. Finally in April, after the market had fallen more than 1,500 points, FIIs turned reluctant sellers. On 9th April, the index fell sharply in one last swoon.

 

FIIs sold Rs664.90 crore worth of stocks that day, one of the highest net sales during the year. The Sensex dipped a shade below 18,200 the next day and shot up higher, in a straight line, recovering 2,000 points in the blink of an eye. The FIIs had done it again—pressed sales at the market low. April, when the market made its recent low, also witnessed the lowest FII net monthly inflows of the year.

We know that retail investors usually lose their nerve and turn into panic sellers when stock markets suffer sharp declines. Stock experts will tell you that that is exactly when you should be brave enough to buy. Maybe FIIs, the experts with nerves of steel, practice that? Well, not quite. Just as they chase rallies and put in the maximum investment near the market peaks, FIIs also press sales when the market is headed sharply lower. The above is just one such example.

To be fair, often a fund can be a reluctant and forced seller due to redemption requests when the market is crashing. But often this is not the cause behind mass scale selling by FIIs. Hedge funds have clauses to prevent irrational withdrawals (called ‘gating’) by investors can that can affect fund performance. It might surprise you to know that there is usually a complete correlation between significant FIIs net sales and market bottoms, again and again.


Take the extreme case of September and October 2008, when global markets fell off the cliff. As the chart depicts, net sales by FIIs started July 2008, picked up a bit in August and turned into an avalanche in September and October 2008. The major market bottom? October 2008, as the Sensex hit 7,697 intraday on 29th October. FIIs continued to bet net sellers virtually every month right up to March 2009 when from the first week of that month, a global rally was underway.

In January 2010, as the euphoria of the Congress-led victory on 2009 elections started to wear off, the Sensex dipped below 16,000, making a low of 15,652 in early February. Not surprisingly, the FIIs were selling. Their net sales were a significant Rs7216.67 crore in January. Interestingly, their maximum net sales (like in April 2013), coming within days of the exact market short-term bottom. It was exactly the same story in May 2010, as the index, after a temporary rally to 18,000+, started swooning impacted by poor economic growth. On 25th May the Sensex made a bottom of 15,960 and then rose to almost 18,000 within a month. And what did FIIs do in May? Pressed net sales of Rs12,071 crore, the third highest ever and almost as big as their net sales in September 2008, when the global markets were imploding.


The net sales of May 2010 were of course immediately followed by momentum-chasing (as described in the last piece). As the markets took off, FIIs scrambled back to investing Rs7,500-Rs8,500 crore per month for the next three months. It bears repetition, that this was just the appetiser. The FIIs rushed in with over Rs36,800 crore of net buying in September and October 2010, exactly timed with the significant market top of 21,108 on 5 November 2010, one that has not been surpassed till today!

Finally, witness the FII investment behaviour in the second half of 2011, when another important market bottom was made. In August 2011, the euphoria of the late 2010 had worn off. Buying on the hope that quantitative easing by the US Federal Reserve would push up all asset prices was replaced by the reality of flagging corporate performance and interest rate increases in India, combined with the problem of Eurozone. The Sensex hit 15,765 on 26th August. Were FIIs significant buyers? No. Their net sales that month was over Rs11,500 crore. They continued to sell into December, as the Sensex hit 15,136. The moment the market rallied next month, momentum-chasing was in order with a climactic net buying of Rs23,236 crore happening in February 2012, the highest ever, as the Sensex hit a peak of 18,524 and headed lower. FIIs had again done their act of sell low, buy high.

For almost two decades now, FIIs, treated like sons-in-law in an Indian home, have driven the Indian market higher so much so that their holdings of all blue-chip companies far exceeds the combined Indian holdings and are only a step behind the controlling group’s holding. In some cases like HDFC and HDFC Bank, they are, by far, the largest shareholder group. The laws that govern them are shady and remained so, under successive finance ministers—from the righteous Yashwant Sinha to Jaswant Singh to the stalwart of licence-control regime Pranab Mukherjee to command-and-control master P Chidambaram. FIIs are to be left alone. They can come and go, reveal nothing and pay no taxes—we need their money. We hardly know who these people are. Even when the market regulator was investing in the 2001 scam, foreign brokers refused to reveal the names of beneficiary FIIs. The powerful SEBI chairmen could do nothing.

But fret not. No matter who they are, they are not smart enough to follow what some cool-headed individual, amateur investors are able to—buy good stocks when they are down and sell them when you need the money or when the market goes mad. FIIs do the opposite. Buying near the peak, chasing a rally to panic selling at the market lows, they act exactly as the average retail investor, the world over. As an investor, follow the FII data closely and take the other side when you see extremes. You may do better than them!


Also Read: Do FIIs buy high and sell low–II? Momentum-chasing

Do FIIs buy high and sell low – I? Maximum buying at peak index levels

User

COMMENTS

CA PRADEEP AGARWAL

4 years ago

Feel that they are not here for charity, plus derivatives and equity have proportionate link plus foreign currency brought into the country when Indian Rupee is high and sell when it is weak:

1. They are making money through foreign currency trade where they bring in dollars and cash in when Dollars value is low.(through Stock market)
2. By converting equity to derivatives and vice versa.
Buy Derivatives and sell equity and commit within limits-so these are the rules of the game being followed and exploitation of Indian Laws.

Uday Ghosh

4 years ago

It was vital to show that the markets would have peaked even if the FIIs had not invested thousands of crores, and also that the markets would have bottomed even if there were no FII outflows. Otherwise these same statistics can be used to build a case that the FIIs are the sole movers of the Indian markets.

Sandeep Consul

4 years ago

Good Analysis, but there are a few points which are beyond the obvious (those who have been following FII figures for last few years know that near market bottom the figures are big time negative and are hugely positive near the peak).

As you correctly pointed out FII money has not been regulated in the real sense. Any time Governments wants to make even slight changes/ regulate them there is a one or two day crash in the market followed by frontpage stories as to why this will be detrimental to FII flows and the growth of the country(there are n number of such examples including the recent Budget day). So if its really the politicians money which is really coming back they do this drama of - we want to regulate but it will be bad for the country every few months.(Just like we don't want to do anything against Pak for beheading our soldiers or against China for regular incursions because because -----it will escalate the tension - as diffrent ministers are always saying on TV channels)

So the first thing is if this is the real FII money (since beneficiary is still unknown in most cases) or is it the easiest conduit for routing the black money back in to India (this is where the real investigative journalism is required). Its naive to think that the big guns who are controlling the World Financial Markets for over a century now are so foolish as to always "Buy at top and Sell at the bottom"
Even out of the genuine FII money, buyers and sellers at peak and bottom are not the same. There are more than 1000 FIIs registered with SEBI so, its not always the case that FII A, B and C always are included in the buy figures at the top and are again there in the sell figure at the bottom.

Even within the FII there are many categoreis like Proprietory funds of big guns like Goldman, Morgan Stanley, JP Morgan, than their clients money, hedge funds, Pension funds, University Endowment funds etc. Some of them by their mandate have to be conservative, some are momentum chasers, and some of them are market movers (who create the bottoms and tops because of their vision about the economy etc - that's where the saying comes that markets always discount everything way ahead of the actual economic top and bottom).

Its also naive to think that those FIIs who are in the country for last 20 years are always loosing money (by buy high sell low philosophy). If that was the case they would have shut shop many years back having lost all of their proprietory or clients money. Some of them are headed at local level by Indians only and have mastered the art of manipulating stock price movement (if not the whole market) in connivance with local big guns (firangi fire power with local tactics in desi flavour).

Lot of these Indian big guns have mastered the art of giving interview on different media channels like "India is a in long term structural bull market" while pressing sell button in their proprietory portfolio and vice versa.

Your efforts at Moneylife and articles are really praiseworthy but please go beyond what is visible to naked eyes and find out the real modus operandi of money laundering in the name of FII money. (just look at FII data around last two bottoms 20/11/12 and 9/4/13 FII figures on and 3-4 days after that are negative or slightly positive but then there is big burst of FII buying on a daily basis). There are many instances and leads of connivance & front running between the local guys and so called FIIs -unless they are really the same person :)

REPLY

Suiketu Shah

In Reply to Sandeep Consul 4 years ago

How insignificant India is for most of the first world countries can be judged by the amount of coverage the local papers give there-hardly one small paragraph in the whole newspaper.You are right.Genuine FII's are very very few.

Firstcitizen

4 years ago

I think writer lacks basic knowledge of market.
FII main money is in fno and they buy futures at bottom and short futures at top and you cash stocks for reversals.
Simple lacks at indian media i guess.

REPLY

pravsemilo

In Reply to Firstcitizen 4 years ago

Just to counter your claims, this is posted today on bloomberg's home page.

http://www.bloomberg.com/news/2013-05-17...

Suiketu Shah

In Reply to Firstcitizen 4 years ago

Yr statement proves the hollowness of yr thinking.

Moneylife's analysis and opinion of Indian equity markets is better than anyone in India.

240p FLV

In Reply to Firstcitizen 4 years ago

Its foolish to say that that FIIs are only buying futures & options and using the cash market for hedging. Their holding in Sensex stocks are at an all-time high.
Besides, we have reviewed many FII portfolios. Many poor quality stocks, mid-cap stocks not in F&O. Be a little less presumptuous, if you want to know facts.

pravsemilo

In Reply to 240p FLV 4 years ago

BTW is this account really held by Debashish? Or is it just the image in the profile:)

Nilesh KAMERKAR

In Reply to pravsemilo 4 years ago

Language sounds very similar to that of Mr.Basu . . .

Debashis Basu

In Reply to pravsemilo 4 years ago

This is mine. I have been trying to fix that silly alphanumeric for some time. It comes and goes. The developer has not been able to fix it so far. :( - Debashis

Nilesh KAMERKAR

In Reply to Firstcitizen 4 years ago

Disagree. On the contrary, there is lack of basic knowledge about the author.

Sameer Bahadur

4 years ago

If someone wishes to move money with a thought of raising as little noise as possible he would move the money into loss making venture. Tell me, who would try to investigate a loser (no one imposes tax on loss anyway). And FII's appears to be doing so everytime.

Now who gains appears to be 'public' in the stock market. But clearly those who trade the largest amount of shares (the big guys) can always rake the maximum share.

Their gain is legal and everyone knows that the burden on this earning could be as low as mere STT.

Isn't this a wonderful scheme for converting black money stashed abroad (into dubious FII's) into white money in hand (partners of big guys). And if FII's and (big guys) are in league, they can very well beat the 'aam public' while at this game.

I still cannot guess whether or how they can beat the 'analytics' set by top fund managers.

Sachin

4 years ago

A lot of FII money is hedge fund money that buys momentum. A lot of time you can buy high and sell higher. Just look at the Dow. Many times such bets go wrong these guys exit in a hurry.

Sachin
http://www.trucompareindia.com

No arrest for posts on social sites without senior police officers’ nod: Supreme Court

The apex court, which refused to pass an order for a blanket ban on the arrest of a person for making objectionable comments on websites, said the states should ensure strict compliance of the Centre’s 9th January advisory which said that a person should not be arrested without taking permission from senior police officials

The Supreme Court today said that no person should be arrested for posting objectionable comments on social networking sites without taking prior permission from senior police officials.

The apex court, which refused to pass an order for a blanket ban on the arrest of a person for making objectionable comments on websites, said the state governments should ensure strict compliance of the Centre’s 9th January advisory which said that a person should not be arrested without taking permission from senior police officials.

The apex court was hearing an application seeking its direction to the authorities not to take action for posting objectionable comments during the pendency of a case before it pertaining to constitutional validity of Section 66A of the Information Technology (IT) Act.

The Section states that any person who sends, by means of a computer resource or communication device, any information that was grossly offensive or has a menacing character could be punished with imprisonment for a maximum term of three years, besides imposition of appropriate fine.

The petition was also filed regarding the arrest of a Hyderabad-based woman activist, who was sent to jail over her Facebook post in which certain ‘objectionable’ comments were made against Tamil Nadu governor K Rosaiah and Congress MLA Amanchi Krishna Mohan. After filing of the petition, she was released by a district court at Hyderabad. Jaya Vindhayal, the state general secretary of People's Union for Civil Liberties, was arrested on 12th May under Section 66A of the IT Act for the ‘objectionable’ post.

User

How LPG customers, willing to pay market rate, are harassed in the name of Aadhaar

If Aadhaar is not mandatory and the customer does not want a LPG cylinder at the subsidised rate, then why did this distributor of Bharat Gas in Hyderabad block his name?

A consumer is entitled to receive nine liquefied petroleum gas (LPG) cylinders per family per year under the subsidised quota. After this rule came into force, one would have thought that at least the consumer would easily get his cooking gas cylinder. Unfortunately, the United Progressive Alliance (UPA) government has different plans. It has launched an ambitious direct cash transfer scheme to dole out subsidy directly into user's bank account. Only hitch was this account must be linked through an Aadhaar number. What everybody forgot was even today, the Unique Identification Authority of India (UIDAI), the body responsible for the Aadhaar numbering scheme, says that its UID is not mandatory.

The UPA government is trying to link Aadhaar-enabled service delivery to various government schemes such as MNREGA wage payments, PDS distribution, payment of social security benefits like as old-age payments and distribution of LPG cylinders. This is being done without taking stock of the ground level infrastructure and practical difficulties.

Here is a glaring case of a Moneylife reader, who was denied a LPG cylinder despite showing readiness to buy it at the market rate. Strangely, the LPG distributor blocked his connection for not providing Aadhaar number. Here is the first person account of the reader...

“I have two LPG connections—one in my name and the other in my wife’s name. Both the connections for single cylinder each are from Bharat Gas and from the same distributor in Hyderabad.

Some time back when the government announced plans to eliminate duplicate gas connections, I approached my distributor asking what to do. He asked me not to worry now and approach him in case there was a problem. At that time, nothing happened. I was able to subscribe to LPG—however, I used only my connection.

Later on in January-February 2013, it was announced that Aadhaar would be required to avail the subsidy. Having read the articles on UIDAI and Aadhaar in Moneylife, I decided not to apply for the Aadhaar number and was ready to buy LPG without subsidy. However, I never needed to buy a cylinder then.

In April 2013, I shifted my residence. For this, I had to approach the distributor to change my delivery address. I was informed that my connection was blocked due to duplicate connections. The distributor asked me to visit him again after a few days. I visited him later but was informed that the connection was blocked again. I had to visit his office thrice.

Finally the fourth time, when I visited his office, there was a new person. He informed me that I needed the Aadhaar number to unblock my connection. I said that I had come earlier and was never told so. He still asked for an Aadhaar number. I said that Aadhaar is required to get the gas cylinder at subsidised rate. And since I do not have Aadhaar number, you can charge me the non-subsidized price and provide me a gas cylinder. He replied saying since these are the rules, I had to provide the Aadhaar number else I would not get the LPG cylinder.

I told him that according to rules, when there is a duplicate connection KYC should be done and two single connections should be converted to a double connection on the same address. He was still adamant about Aadhaar number. I asked for the address for the consumer service cell. He pointed me to a board (bit far away—inside the office). When I went closer to have a look he asked me to read it from outside saying that I was not a VIP (to enter inside). I said that it was not clear—how can I read? (On 25 October 2012, the petroleum ministry decided to allow multiple connections and introduced one more price category called non-subsidized non-domestic exempt-NDEC, which is about three times the subsidized residential price.)

I tried to locate the consumer service cell but could not find it. Looks like I visited the wrong street. I had to visit it again. I then lodged complaint in Public Grievance Forum and BPCL's Feedback page (sadly it accepts only 500 characters on the complaint page). I tried to call the toll free oil companies number—1800 233 3555. There I was informed that Aadhaar number was required in Andhra Pradesh for availing a LPG cylinder while in other states it is required to avail the subsidy on LPG cylinder. I tried to reason with him that Aadhaar is required only for subsidy and nowhere I have read about it is being required to avail LPG cylinder. But that was not helpful.

To my knowledge, Aadhaar is required only to avail the subsidy. In either case consumer has to pay the full amount. If the consumer has a Aadhaar number, then subsidy is directly credited to his linked bank account. This does not mean that consumer cannot buy LPG cylinders or change his address.

I do not want to apply for an Aadhaar card. I will try visiting the consumer service cell again and see what response I get.

Here is the update:
I approached the customer service centre on Saturday and they have helped me out in availing LPG without an Aadhaar number. The only downside is that I cannot avail the subsidy. I am OK with it as my LPG consumption is rather less.

Once I visited the office, I spoke to the sales manager for the region. He then spoke to the distributor asking him to allow me to change my address and convert my two single connections into a single connection with two cylinders.

However, based on my experience with the distributors the following still needs to be improved on:
1. For new connections, it is mandatory to buy gas stoves or other things from the distributor. In addition, these are priced exorbitantly. I have had issues with my distributor which were resolved after intervention of Bharat Petroleum.

2. Though much is being said about LPG portability, I cannot see how this will help. For any oil marketing company (OMC) there is only one distributor in a given region. Thus if one wants to port, he will have to switch to another OMC's distributor in the same region. I wonder how will this benefit the consumer as the service quality is same, prices are same, goondaism of the distributors is also the same.


You may also want to read…
Never-ending woes of LPG consumers

Is Aadhaar being used as a political tool by the UPA government?

LPG quota: Mockery of subsidy reduction efforts or unadulterated politics?

User

COMMENTS

Jingo

4 years ago

It is sad that this fellow citizen had to run around so much to get something ao basic. Its a shame that Oil Marketing Companies have not been able to train the distributors properly or have wilfully ignored the harassment which ordinary citizens have to go throughformundane things like applying for a cyclinder or change of address.

Honestly my question is why do we need subsidy on gas culinders? As long as there is not excessive taxation and profiteering by the OMCs, why cannot we pay market price for something as basic as a cylinder? Dont we buy clothes without any subsidy. Dont we buy homes without any subsidy or rent them where we cannot afford them??
Then why does the Govt insist on subsidising the price of gas cylinders? They should remove that subsidy altogether instead of harassing citizens like this for compulsory aadhar mapping, etc.
whatever we save from their can go to reduce the price of diesel or petrol or still better be used to pay higher slaaries to well performing teachers in government schools or subsidizing education for children of economically poor sections.

D A Bhatt

4 years ago

It appears that UPA government want to revert back to license and ration card time (1947 to 1976) time politics which was favorable and convenient to congress. Otherwise; LPG and other petroleum product prizing procurers are purely accounting manipulation by wrong advisors and low grade financial consultants. This is my opinion and perception about prizing and distribution of petroleum products in our country.

Mandar Kulkarni

4 years ago

#SayNoToUID I appreciate your fight against UID. I have also decided to go for LPG at market price; but not enroll for Aadhaar. Hopefully the PIL against UID will soon result in scrapping this project or the next non-congress govt will scrap this project.

REPLY

pravsemilo

In Reply to Mandar Kulkarni 4 years ago

One can not enroll for Aadhar. But government is hell bent to get us enrolled. Although you can still avail LPG connection without Aadhar, what about other services like pension, banking, insurance, telecom etc? That is a bigger worry.

Mukesh kamath

4 years ago

The speech in the video by sucheta dalal is an eye opener. I am always reading newspaper and looking out of good news. Once i feel good about somethings i will start splurging.

Vaibhav Dhoka

4 years ago

Adhar is to make citizen Niradhar. Dealers are harassing customers in name of Adhar. Govt.should implement Adhar link only after all citizens are enrolled.In Pune there is no Adhar center.On inquiry they say that they will announce in newspaper.

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