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Ringsideview
There is always a popular perception in the stock market that once foreign portfolio investors (FPI) decide to pull the rug, the market will go into a tailspin. But it seems there is a twist in the tale. FPIs have been selling heavily in the Indian stock markets. FPIs have sold more than $3 billion this month alone in the cash segment till January 28, according to the latest official data.
Their selling has increased in the last three days, as the US Federal reserve hardened its stance on rate hike, which seems imminent from March.
In the last four months, including January, FPIs selling almost stood at $9 billion. The four-month streak of withdrawals is set to be the longest since January 2017, according to Bloomberg. But the Sensex and the Nifty have fallen just 8 per cent in this period.
Sliding FPI holding
A Motilal Oswal Financial Services study has revealed that foreign institutional investor (FII) holding in Nifty-500 was down 60 bps q-o-q/160 bps y-o-y to 20.9 per cent at the end of December 2021 which is the lowest since June 2020.
FIIs reduced their ownership in 53 per cent of Nifty-500 companies and 74 per cent of Nifty 50 companies during October-December 2021 with respect to the preceding quarter. In the last one year, the FII-DII ratio has increased in the consumer durables, utilities, chemicals, technology, telecom, metals, and capital goods sectors. Conversely, the FII-DII ratio has decreased in NBFCs, real estate, private banks, insurance, automobiles, healthcare and cement sectors. A mixed trend was observed in promoter holdings – with a marginal increase of 10bp q-o-q (up 110 bp y-o-y to 50.4 per cent).
Benchmarks resilient
The behaviour of markets this time around suggest increasingly less influence of FPIs. The benchmark S&P BSE Sensex is down about 8 per cent since hitting an all-time high in mid-October.
In fact, even the worst performer - BSE Midcap fell just 11 per cent. The BSE Small-Cap is just 7.5 per cent away from its peak. On previous occasions, benchmarks crashed at least 30 per cent from peak when FPIs sold domestic equities on such a large scale. The mid & small-cap space suffered were the worst hit, due to low liquidity and high selling volumes of foreigners.
EPFO, NPS: counter balancing
So, is the influence of FPIs waning? Though one can say that their influence is slightly less this time around, crash in some of FPI-heavy stocks are over 25 per cent, signalling their heft in individual pockets. Besides, this also indicates even FPIs adopt selectively and do sector rotation strategy. However, the increasing number of retail investors today, through direct investments and mutual funds, give little room for FPIs to control the market to their liking.
Unlike earlier, where only LIC used to act as counter balancing agent for FPI selling, this time around institutions such as EPFO and NPS are also providing strength to the market besides ever growing retail investors and mutual funds.
It seems the FPIs are finally finding their match, with investors of new India not ready to be swayed by foreign interests. Given the situation, FPIs returning after hibernation will result in a big rally in the stock markets, some expert feel. But the question is what will trigger the buying activity.
Will it be the forthcoming Union Budget? The jury is still out on that, and February 1 holds the key.
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