The worst seems to have been over but the temporary jitters still might be there for some time,yes i am talking about the last months market crash which literally shook every single investor who has put even a cent in the market.Now its time to look back and find out whats that factor which led to such a huge down fall in the index.Apart from all the global cues and US recession its basically the FII effect which is the central reason behind this.

The sensex lost around 13% from its previous highs.Lets analyze in detail how the FIIs became net sellers almost everyday.The FIIs(Financial Institutional Investors) sold over a massive $3 billion roughly Rs 12,000 crore in the very first month of the year ‘08-the maximum so far in a particular month in the history of stock markets.

But the financial Analyst are not worried of this.They attributed the reason being that of subprime loan crisis in the US and nothing much to do with the fundamentals of the Indian economy in general.And its also being said that FIIs are to return back when the global sell-off settles down.

FIIs have a major role in the Indian stock markets and theres no way denying this.That becomes crystal clear from this figures.FIIs have a share of around $300 billion in the Indian equity markets which has a size of around $1,500 billion.So thats cool 20% share.And when this is tampered its obvious that it will reflect in the indices.As i wrote in a previous post that Indian markets are not totally decoupled from the rest of the world and when there is a global melt down like what happened in the last month FIIs will sell assets in the Indian markets to fund losses some where else in the west.

Lets go back into history to see FIIs activity and its impact on the markets.In August 2007 too they sold around $ 2 billion and the markets were down by 1.5% ,in Nov 2007 they sold off $ 1.45 billion which led to a fall of around 2.4% in the sensex.In May 2004 when we saw another steep fall in the  markets when sensex lost about 16%,FIIs sold equity worth $738 million in total.

Another reason being attributed from Indian point of view are the mega IPOs from Reliance power and Future Capital which sucked off around 1 lakh crore from the markets.The Reliance Power allotment is finally done with and the money is being returned back to those who could not be alloted the shares and this may lead to a rally in the markets.

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