SOME leading foreign institutional investors (FIIs), with large exposures to the Indian stock markets, have issued instructions to fund managers asking them not to trade in the market after December 15, 99, in view of the Y2K bug fear. Among the FIIs that have issued the instructions are the US Putnam Investment Mana-gement, Scudder Steven and Clark, JP Morgan Investment Management and Genesis Asset Management.

Although the instructions are generic and region-specific, fund managers managing emerging markets have been asked to exercise extreme caution, sources said. In many cases no formal instruction has been issued but the fund managers have been cautioned not to keep any open settlement positions in the new year. The FIIs have a total net investment position of around $9.7bn in Indian markets.

Foreign broking house sources told ET that many fund managers had already considered not taking any position in the market around new year, but now specific instructions were beginning to flow in. Cut-off dates specified by various FIIs differ but the underlying message is clear: Stay out of the market till the fear of unknown is over.

The reason for such an instruction is clear and straight. No FII wants to keep an open settlement position on the eve of the New Year. Hence, they have issued instructions saying that all trades should be settled before the year draws to a close. Hence, many FIIs have specified a cut-off date of December 15 to be on the safer side, a director with a Hong Kong-based brokerage said.

Market players believe that the impact of such a move would be a sharp drop in volumes towards mid-December. At present, the combined turnover on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) is nearly Rs 6,000 crore. Of this, nearly Rs 350 crore to Rs 400 crore is contributed by the FIIs, which is less than 6 per cent.

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Not going to be good for Asian markets in late December.

-- John (jh@NotReal.ca), November 30, 1999