Foreign portfolio investors’ (FPI) holdings in Indian stocks have hit their lowest levels in a decade amid extensive selling of domestic stocks by foreign investors since September 2023.
The total holdings of FPIs stand at ₹54.5 lakh crore, implying 16.6% holdings of total Indian stocks in November 2023 which is the lowest since 2012, according to ICICI Securities.
FPIs sold Indian stocks worth more than ₹40,000 crore from September this year.
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“Currently, the fall in FPI holdings is due to sharp selling observed since September 2023 and also underperformance due to their portfolio orientation (eg: 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 micro-caps, where FPIs have fewer holdings, has resulted in a decline in FPI holdings of general Indian stocks.
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The recent increase in US Treasury yields above 3.5-4% after September spooked capital markets even as the US Federal Reserve neared the end of its rate hike cycle driven by a moderate inflation outlook.
The decadently low FPI stock holdings are ironic as Indian fundamentals approach their all-time best.
The brokerage believes that favorable cycles in terms of corporate profits, investment index, NPAs, tax buoyancy, current account, inflation etc have the potential to reverse record low FPI holdings as fears of a yield spike recede and valuations become reasonable.
However, election-related uncertainty could add volatility to near-term flows.
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Meanwhile, data on aggregate sector institutional flows available during October 2023 indicates that FPIs bought more industrials while heavy selling was observed in financials.
The quarterly corporate stock pattern also indicates an increase in small and midcaps and a decrease in large caps.
Moreover, active ‘market cap’-based mutual fund portfolios continue to see buying across sectors led by healthcare, private banks and other financial services, industrials etc, according to the brokerage report, while selling was observed in PSU banks during October 2023.
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Updated: 24 Nov 2023, 13:48 IST