Sensex breaches 17,000 on heavy FII inflows

The Sensex broke the 17,000-mark on Wednesday — a level first reached two years ago in September 2007 and last seen 16 months ago in May last year — as FII inflows continued to flood the market.

The index gained 273 points, or 1.6 per cent, to close at 17,126. The Nifty gained 1.5 per cent, closing at 5,083.

One of the key debates doing the rounds was how much of the FII inflows — Rs 1,074 crore in the net on Wednesday alone — have been occasioned by ‘dollar carry trade’ and if so, would it create a bubble on the lines of the ‘yen carry trade’ of a couple of years ago.

This creates a situation where investors borrow in low-interest currencies and invest the funds in other asset classes or in markets where interest rates are higher.

Currently, the US Federal Reserve’s interest rate for borrowing in dollar is between zero and 0.25 per cent.

“Since the US Federal Reserve has kept the dollar interest rate at near zero per cent, dollar borrowing is happening and is being deployed in other currencies. Hedge funds are borrowing in dollars and deploying it in other asset classes such as commodities, gold and equities in the emerging markets, so you will see other assets going up,” said Mr Amitabh Chakraborty, President Equity Religare Capital Markets Ltd.

Some others were of the view that it is relatively (compared to 2007) longer term money that is coming in. “It is better quality money as hedge funds are yet to raise capital all over the world,” said Mr C. J. George, Managing Director, Geojit BNP Paribas Financial Services. The market has now discounted 2011 earnings and is slightly stretched, but it shows long-term optimism, he added.

Nevertheless, the once-bitten-twice-shy retail investor kept rather strictly away. “Many retail investors became bankrupt last year; the way the markets are rising now makes me uncomfortable,” said Mr Ravi B., a retail investor from Bangalore.

In September, retail investors have been net sellers for over Rs 4,000 crore on the BSE alone.

Some of the wiser ones were churning portfolios and booking profits, observed Mr Deven Choksey, Managing Director of brokerage KR Choksey.

Among the domestic institutions, insurance companies are buying, but mutual funds have not been buying much as they have already deployed cash lying with them, said Mr Arindam Ghosh, Chief Executive Officer, Mirae Asset Global Investments. DIIs were net buyers for Rs 159 crore on Wednesday.

Private sector banks were the favourite buys of the day and insurance companies were major buyers of mid-cap PSU bank shares, said brokers.

ANSHU KUMAR

PGDM-1st sem