8:40 AM
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SUSPECTING possible foul play by some foreign investors in the stock market, watchdog Sebi is probing into a strange upsurge in their buying activities days before the companies announce their quarterly results. Companies generally announce their financial results after about a week of the end of every quarter and it is common for investors to base their investment decisions on these figures.
However, in a strange pattern noticed for the past few quarters, foreign institutional investors (FIIs) are embarking on an above-normal stock buying spree just before the start of the corporate earnings season. This buying spree generally begins about 10 days before the earnings season and stops 2-3 days before the results start coming out.
The average quantum of stock-purchase activities in these days has been much more than the daily average for other parts of a quarter, leading to a case for suspicion by the Securities and Exchange Board of India.
While the investigation is in its initial stage, it is being probed whether this upsurge in FII buying was due to any insider information about the corporate result. There have been only 4-5 days during such periods in the past one-and-a-half year when FIIs have been net sellers of stocks. This strange trend has been noticed for the past few quarters, when corporate results have not been very good due to factors like soaring inflation, economic slowdown and rising interest costs.
In this backdrop, Sebi is investigating whether FIIs are getting any prior information about companies not being able to post a strong set of results. It is being probed whether the shares are being purchased with an intention to sell in a pre-earnings rally, which generally builds up a day or two before the quarterly results.
The daily average for net purchase by FIIs so far in 2011 stands below `100 crore, but they have been purchasing shares worth an average of more than `1,000 crore during the 5-10 days before the beginning of quarterly results.
A similar pattern was also noticed for the figures for 2010, when the average daily FII inflow into stocks stood at about `500 crore but the last 5-10 days before the earnings season had average net inflow at `1,000 crore.