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If 2020 was the year of record foreign fund inflows into the Indian equity market, 2022 turned out to be the year of worst outflows. After a three-year buying streak, foreign portfolio investors (FPIs) will close 2022 as net sellers of Indian equities.
According to depositories data, FPI net outflows from the Indian equities, on a year-to-date basis, stands at ₹1.21-lakh crore as on Friday. In the previous calendar year, FPIs poured in ₹25,752 crore following a record investment of ₹1.70-lakh crore in 2020 and ₹1.01-lakh crore in 2019.
Fed tightening
FPIs have been pulling out huge sums of money from the Indian market since the beginning of 2022 amid aggressive monetary policy tightening by global central banks. The outflows were further accentuated by factors such as weakening rupee, high inflation, Russia-Ukraine war and fears of global economic recession. In the first half of CY22, FPI outflows from equities stood at ₹2.17-lakh crore.
However, the foreign investors turned net buyers in most part of the second half amid cooling-off of US inflation, strong earnings growth posted by the corporate India and strengthening balance sheet of the banking and financial services sector. Between July and till date, FPIs have pumped in ₹96,357 crore in Indian equities.
In its latest report, ‘India Market Strategy’, Yes Securities said “We reckon the very best of FII flows are yet to come. Barring near-term corrections, which are usual in any market cycle, we remain steadfastly positive on Indian equities in 2023.”
Gainers/Losers
On a sectoral basis, IT services and BFSI — the two sectors which hold a chunk of FPI assets — bore the maximum brunt of the exodus. While IT services saw a net outflow of ₹69,115 crore, BFSI saw a net outflow at ₹63,929 crore. Oil & gas (₹22,103 crore), consumer durables (₹19,543 crore) and construction materials (₹8,007 crore) are the other major losers.
FMCG is the major gainer of FPI funds with a net inflow of ₹19,366 crore followed by healthcare (₹14,131 crore) and consumer services (₹11,367 crore). As on date in December, FPIs have poured ₹11,557 crore in equities. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said FPIs were buyers in autos, capital goods, FMCG and real estate stocks and sellers in consumer durables, oil and gas, power and financials.
“FPIs are likely to turn cautious in the near term. Macro data from the US and Covid news will drive FPI flows and the markets in the near term,” he added.
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