Waning FII Interest Takes Toll On Investor Sentiment

(RTTNews) - Indian equities fell this week amid profit booking by foreign funds ahead of the year end. With the Modi government's reforms program in limbo and the Chinese market riding high on stimulus hopes, overseas investors seem to have lost their appetite for Indian shares this month.

The waning investor interest and growing expectations that the Federal Reserve will raise interest rates in the middle of 2015 are exerting downward pressure on the rupee, leaving less room for rate cuts.

The benchmark index S&P BSE Sensex fell about half a percent in the week ended Friday, while the broader CNX Nifty slid 0.3 percent.

The Sensex and Nifty rose over a percent each to extend gains for the third straight session on Monday despite persistent selling by foreign funds. Sentiment was bolstered after major exit polls predicted the formation of a BJP government in Jharkhand and Finance Minister Arun Jaitley said the government will push ahead with crucial reforms, notwithstanding political obstructionism in the Rajya Sabha. Global cues remained supportive as crude prices rebounded and the Russian ruble steadied against the U.S. dollar.

The Sensex and Nifty erased early gains to end down about 0.7 percent each on Tuesday as investors took some profits off the table following three sessions of sharp gains. With both the Houses of Parliament adjourning sine die, big electoral gains for the BJP in Jharkhand and Jammu & Kashmir failed to bring cheer to investors.

Stocks tumbled on Wednesday amid the expiry of December series derivative contracts. Both the Sensex and Nifty fell over a percent each, driven by FII fund flows as upbeat U.S. GDP figures, buoyed by stronger consumer and business spending, raised expectations the Federal Reserve will hike interest rates sooner rather than later.

The markets ended a choppy session marginally higher on Friday as trading resumed after a holiday the previous day on account of Christmas holiday. While IT, metal and realty stocks saw good buying, consumer durable and FMCG stocks ended on a subdued note.

President Pranab Mukherjee on Friday signed the two ordinances cleared by the Union Cabinet on raising foreign direct investment (FDI) in insurance sector and facilitating e-auction of coal blocks.

While opposition parties attacked the government for taking the ordinance route for such important reform measures, Finance Minister defended the Centre's decision, saying it demonstrates the firm commitment and determination of the government to reforms.

Since the NDA government doesn't have the required numbers in the upper House, the government plans to call a joint session if the insurance bill is again blocked in the Rajya Sabha in the next session. Interestingly, the President will agree to call a joint sitting of the two Houses only if a Bill had been cleared by one House but rejected by the other House.

As a result of the deadlock in Rajya Sabha, the government couldn't table the Insurance Bill in the winter session of Parliament. These ordinances to push reforms in the insurance and coal sectors have to be ratified within six months by Parliament for them to become law.

As such, the ordinance route will be like a sword dangling over the head of the government, Shiv Sena, a constituent of the ruling NDA, said in an editorial in party mouthpiece 'Saamana'.

With more and more state Assemblies going to the polls and the BJP making big electoral gains in all state elections under Modi's leadership, the party hopes to become the single largest party in the Rajya Sabha by 2016 end.