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Who says that heavy FII selling is dragging the Sensex down?

A study of the official data on net investments by FIIs in Indian equity markets for the months of August’08 & September’08 vis a’ vis the movement of BSE Sensex reveals a different story.
The pumping of money by FIIs or heavy sales by FIIs are not correlated to the movement of Sensex which means that heavy selling by FIIs does not mean necessary fall of Sensex and vice versa.
The data reveal (tables attached) that almost 40% of the times the trends are completely reverse i.e. when the FIIs are investing the Sensex has dropped and vice versa.
Moreover, the correlation between the two variables (investment by FII and movement of Sensex) for August’08 comes out to be 0.14 & for September’08 at -0.01. Both are insignificant and to the top of it the correlation for August’08 if positive whereas for September’08 is negative.
Hence all the analysts blaming the fall in the Indian Stock markets to heavy selling by FIIs are not fully correct. If at around 40% of the times, we see a reverse trend that too in the times of global financial crisis, then one has to study other factors and the sole blame on FII selling is not correct. It can also not be said that 40% is insignificant. Moreover, the data studied also pertains to the last 2 consecutive months.
Again this proves that – it’s all about sentiments and nothing else. There is no denying the fact that money pumped in by FIIs helps boost the confidence in the markets and vice versa but projecting it as a sole factor for the movement of Indian Stock Markets is not correct.
The author is a banker and may be contacted on

From India , Delhi

Attached Files
File Type: xls Sensex & FII data.xls (26.0 KB, 378 views)

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