Overseas investors, who have been largely credited with pumping up the seven-month rally in the domestic equity markets, are likely to scale down their purchases in the coming months as they start the anticipated year-end profit-booking.

Brokers say, "there is an apprehension in the market that investments by foreign institutional investors may taper off towards the end of the year, when they are expected to book profits to meet year-end obligations in their home countries."

This, in turn, may force some foreign funds to pull out money. However, there seems to be no consensus on whether all foreign institutional investors will pull out, or whether those who came in late will continue with their value shopping.

Traders said foreign fund activity would determine the market's short-term trend as there were no other triggers in the market. Also fresh inflows will depend on fresh allocations to emerging market in the next two months.

Overseas investors pumped in a net $6.08 billion into the Indian markets -- equity and debt -- till November 24. This amount is almost twice the previous best of $3.05 billion in 1996.

Of the $6.08 billion (Rs 28,320 crore) net FII investments till November 24, 2003, investment in equity stands at around $5.01 billion, while the rest is in debt.

Interestingly, a number of hedge funds have been the biggest investors in the Indian markets. These funds, apart from investing in the equity and debt markets, have been big arbitrageurs in the derivative segment too.

Foreign funds account for close to 18-20 per cent of the total turnover on National Stock Exchange's derivative segment.

October witnessed the highest monthly net flow into the market at $1.47 billion (Rs 6,862.60 crore). This is over and above the fact that FIIs have been net buyers throughout the year.

Also, there has been an exponential rise in inflows between September and October. While September recorded net inflows of $0.96 billion, October recorded $1.47 billion.

Interestingly, the number of foreign institutional investors registered with the Securities and Exchange Board of India has also risen from 509 at the end of September to 515 on November 24, 2003.

Foreign funds are booking profits and rolling over the contracts, which gives them the opportunity of buying back the same shares at lower levels.

So fresh investments are taking place along with a lot of churning. For instance, they are booking profits in blue-chips and buying into second rung stocks. Plus, there is a steady stream of new FIIs coming in to register themselves and get a piece of the action.

According to EmergingPortfolio.com Fund Research, investors have pumped a total of $10.83 billion of new money into the 961 dedicated emerging market equity funds in this calendar year.

These funds command approximately $111.4 billion in assets under management. This increase represents a 13 per cent increase in assets from the beginning of this year.

"Emerging market equity funds are on way to exceed the record year for total inflows of $10.89 billion set in 1996," a recent EPFR report said.