When a ship starts sinking, first to run away is the timid mice! Because of global economic recession, all the FIIs are running away from Indian stock market resulting heavy outflow of forign exchange.The global inflow of forign currency during last one year , propelling equity stock index above 20000 has at last accepted the ground reality. P/E ratio must be based on performance and not on speculative hypothetical guess work.The foreign exchange reserves shrunk by $15.47 billion - the largest fall in a week - to $258.415 billion for the week ended October 24, according to the latest figures released by the Reserve Bank of India. The reserves had dropped by $118 million to $273.886 billion in the previous week.

The forex kitty has been depleting for the last few months with foreign institutional investors resorting to heavy selling in the equity market and the RBI trying to save the falling rupee.

In October alone, forex reserves have fallen by a total of $33.4 billion. The main reason for the fall in the reserves could be the aggressive selling of dollars by the RBI in the currency market. 

The changes in the valuation of the dollar against currencies such as euro and pound in the overseas markets may not have had much of an impact because the euro was steady between $1.37 and $1.38.

 “Importers are running for cover, while exporters are cancelling their forward contracts. Nobody has gained in the rupee depreciation of more than 20 per cent from 39 to 50,”.

As per data from the Securities and Exchange Board of India, FIIs sold a total of Rs 2,524.5 crore in equities. However, according to data from the Bombay Stock Exchange, FIIs were net sellers to the tune of Rs 3,853.42 crore in the same week.

The SEBI data pertains to all the activities undertaken by FIIs in Indian securities market, including trades done in secondary market, primary market and activities involved in right/bonus issues, private placement, merger and acquisition etc.

India’s forex reserves had reached its peak of $316.17 billion, during the week ended May 23, 2008.

According to the RBI data, for the week under review, foreign currency assets declined by $15.467 billion to touch $249.394 billion. Gold remained unchanged at $8.565 billion. SDRs increased by $5 million to $9 million. The country’s reserve position in the IMF fell by $9 million to $447 million.

Thus there exist a clear need of equating P/E ratio or any international business with factual operative performance of any organization.Any deviation from factual performance always lead to interference from either bulls or bears leaving poor sheeps to get slaughtered during stabilization step.