Foreign companies, foreign institutions also invest in the Indian equity markets. In the listed universe 50-55% of the equity is held by the promoters, FII hold approximately 20-21% , and DII(Domestic institutional investor) Hold approximately 15-16%, remaining is held by retail investors. This makes FII’s an important component of the markets.
Although the holding of FII’s have gone down over the years as mutual fund inflows by the domestic investors have increased. The FII holding is significantly enough to take the markets in a volatile spree. We have to keep in mind that FII’s are not very long term oriented when it comes to emerging markets as they see these as riskier investments.
In the current scenario of high yield, where the cost of capital has gone upwards we will see companies posting disappointing numbers going ahead, and this will diminish returns in the short term. The higher yields on sovereign debt and the higher safety associated with it, might see the FII’s look at them for alternative options. And this usually means the starting of a bearish run in equities which is happening to some extent already.
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