Is recovery in west bad for Indian stock market?

With the economical recovery in western countries, especially Europe, Indian stock markets are witnessing a withdrawal of funds by Foreign Institutional Investors. FIIs investment in January 2011 was 48 per cent lesser than their investment in the same period in 2010. Analysts are busying in stock picks but if FIIs continued to shift their funds from Indian stock market then stock exchanges can plunge further.

Post economical crisis in west, FIIs started shifting their funds from western markets to developing markets. India was the one of the biggest beneficiary of that. Indian stock market outperformed its peer markets and did much better. But economies in west are doing well now, money is finally going back home. There has been consistent drop in FIIs investment in last few months which started in November 2010. This withdrawal has been accompanied by a downfall in stock markets.

Indian stock markets are already gone tizzy and disturbing geo political scenarios have further worsened the situation. Though crude has calmed down a bit in the last few days and as a result markets are again moving up, but their move is very fragile and possibility of stock market correcting sharply cannot be ruled out. Even today, markets are quite choppy.

This current up move is more related to the up move in Reliance Industries which is doing well after the positive news about their business. Most of the analysts are reviewing Reliance Industries and the stock market. Some of them are quite optimistic at the moment. But the fact that FIIs fund flowing outside Indian stock markets is a very negative news. Though domestic institutional players have been buying recently but Indian markets depend a lot on FIIs for its up move.

RBI is also concerned about it and it may set up a committee to look into it. FIIs are also important from the deficit point of view. High FII funds help Indian government to cover its deficit. And if the way they are withdrawing fund from stock market here, we may see more downfall.

Rise in crude prices is also a very important reason behind their fund allocation. Whatever might be the case but if it continues then the investor’s expectation of stock market crossing all time high in this year, doesn’t look likely.

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