Two things have happened recently that have produced a small scare.

One, that Mark Carney, governor of the Bank of England, has said interest rates could rise sooner than markets expect. British rates are 0.5%. But they have a housing bubble going on, even as the economy is recovering. These point to the fact that rates will have to be increased as things continue to improve, and to avoid asset bubbles – and sooner than anticipated.

Second, that militants in Iraq are advancing dangerously, taking over entire towns without much of a fight. Brent Crude has shot up to $113, which is a $7 jump in a very short time. This impacts everything – the fiscal deficit (greater subsidy), oil companies (bigger losses due to underrecovery share of loss) and industry (higher cost of power).

The Nifty fell 1.4%, the midcap index fell 2.76% and the small cap index fell 3.64%. Sounded like carnage if you owned smaller companies. From BPCL to NTPC to DLF, stocks saw moves of -4%. IT and Pharma stocks, the regular defensives, were steady. The rupee fell to Rs. 59.77.

While it seem like markets moved fast down today, turns out (from the BSE) that

  • Foreign investors net bought stocks, worth over 1,099 cr.
  • Domestic institutions bought stocks of 358 cr.

In FII buying, what was included was a 1,100 cr. of Hero Motocorp, which was being sold by the Indian arm of Bain capital. Even though Bain is a foreign entity, the shareholding was held by an Indian subsidiary, so it won’t count as an FII sale. Even considering that, FIIs didn’t seem to have sold that much. HT @Mur_Att for the info.

Who sold? If Institutions were buyers, the sellers were all retail. That might simply mean this down move is a head-fake, and the rally will resume after this round of selling fades.

What’s it going to be? More Iraq, brent crude, and interest rate hikes? Or we go back to “normal” as we’ve done so many times earlier?

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