FPI holding in Indian stocks hit a 10-year low of 16.6% in November
The holdings of foreign portfolio investors’ (FPI) in Indian stocks have reached their lowest levels in a decade amid extensive selling of domestic equities by overseas investors since September 2023.
The aggregate holdings of FPIs stand at ₹54.5 lakh crore, implying 16.6% holdings of overall Indian equities as of November 2023 which is the lowest since 2012, as per ICICI Securities.
FPIs have sold Indian equities worth more than ₹40,000 crore since September this year.
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“Currently, the drop in FPI holdings is due to sharp selling observed since September 2023 and also underperformance due to their portfolio orientation (for example: Underperformance of their overweight position in high-quality relatively expensive financial stocks and outperformance of their underweight position in industrials),” ICICI Securities said in a report.
Moreover, the sharp outperformance of mid, small and microcaps where FPIs have lesser holdings has resulted in a dip in FPI holdings of overall Indian equities.
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The recent surge in US Treasury yields above 3.5-4% after September spooked capital markets even as the US Federal Reserve approached the end of its rate hike cycle driven by a moderating inflation outlook.
The decadal-low FPI equity holdings are ironic given Indian fundamentals are approaching their historical best.
The brokerage believes favourable cycles in terms of corporate profits, investment rate, NPAs, tax buoyancy, current account, inflation etc. have the potential to reverse record-low FPI holdings as yield spike fears recede and valuations turn reasonable.
However, election-related uncertainty could add volatility to near-term flows.
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Meanwhile, data on aggregate sectoral institutional flows available during October 2023 indicates FPIs bought more of industrials while large selling was observed in financials.
The quarterly corporate shareholding pattern also indicates an uptick in small and midcap holdings and a dip in large cap holdings.
Moreover, active ‘market cap’ based mutual fund portfolios continue to see buying across sectors led by healthcare, private banks plus other financial services, industrials etc, as per the brokerage report, while selling was observed in PSU banks during October 2023.
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Updated: 24 Nov 2023, 01:48 PM IST
