Surviving the sensex

27 November 2004

A retail investor's guide to surviving the turbulence of the stock market. By Uday Chatterjee

The bad news of the week has been the Ambani imbroglio. And since even dark clouds have a silver lining, the good news of the week was that the sensex showed more sense — it did not crash — despite gloom among brokers, a jittery lot at such times.

The bitter, brotherly fracas notwithstanding, analysts predict that the sensex is even likely to move further upwards. Earlier, such a phenomenon would have been unimaginable. This, however, has happened because of the unabated inflow of foreign institutional investor (FII) money.

FIIs invest in markets the world over and the amount allocated to each market is based on certain parameters, which according to them would fetch the best returns.

FIIs benchmark their performance against the Morgan Stanley 'capital international index'. The index reveals how the stock markets have performed in each country. In recent years, the index for India has not gained in a significant manner. However, the Morgan Stanley 'index for emerging markets' has shown attractive returns in recent years. India is perceived as an emerging market and therefore FIIs' fund allocation for India has gone up, and this is the prime reason for the surge of FII inflows to India.

Besides, there are several factors, which have found favour with the FIIs such as a strong currency, improving geopolitical environment, reforms in key sectors like banking, power and telecommunications, privatisation and stable policies.