FII stock ownership plunges to 19.9%, value down to $582 bn

After the record $23 billion of additional investments in domestic equities in FY21, foreign funds have massively slashed their fresh exposure to the country to $3.7 billion in FY22, also pairing down their holdings in the NSE 500 to 19.9% or worth $582 billion, down from their peak of 21.4%, Bank of America Securities India said in a report.

During the current fiscal till early this week, the cumulative FPI outflows touched a record $14.6 billion, of which March alone saw them taking out as much as $5.4 billion, while February saw another record pullout to the tune of $4.7 billion, according to the analysis.

The value of FPI holdings stood at $582 billion as of March 15, 2022 (down from $667 billion in September 2021 peak), of which, IT (15%, up 87 bps), energy (15.5%, up 44 bps), healthcare (4.9%, up 22 bps) saw higher allocation.

On the other hand, allocation to financials was down 107 bps to 31.5%.

Domestic funds’ holdings stood at $265 billion as of February 2022, on the back of $13.1 billion fresh allocation.

However, the FPI holding value is massively down from the record $667 billion in the first half of FY22, which was an addition of a full $112 billion between April 1 and September 30, 2021, according to an earlier BofA report.

The value of the FPI holding was $555 billion as of March 2021, which was a full $105 billion more than the value between September 2020 and March 2021.

According to the report, the market is not bleeding badly because domestic institutional investors have been very active and have pumped in 13.1 billion in the year, of which $5 billion was in February alone, leaving the net outflow from the market only at $1.5 billion.

BofA also pointed out that the $5.4 billion of FPI outflows in March marked the sixth consecutive month of outflows, taking the cumulative pullout to $14.6 billion on the back of heightened geopolitical risks.

The March outflows were the most severe since March 2020 after the pandemic hit the world.

Since late March, after Russia invaded Ukraine, the market has been jittery. Outflows gathered further momentum with the U.S. Fed raising rates by 25 bps and stuck to its plans of six more rounds of rate hike this year.

While the FPI ownership of domestic stocks peaked in December 2020 at 21.4%, which inched down to 21.2% in March 2021, by December 2021 it came down further to 19.9%, according to the report.

In comparison, FII inflows to other EMs so far in 2022 saw heavy outflows while Brazil-led inflows of $11.7 billion.

As of March 15, energy ($74 million and healthcare ($46 million) saw inflows, while there was negative deployments across other sectors like financials ($2.9 billion), industrials ($651 million), discretionary ($1.2 billion), accounting for the highest outflows since March 2017.

Outflows in IT ($80 million) slowed down considerably after two consecutive months of heavy outflows ($1.8 billion average).

Year 2021 saw the primary market on a song with saw record IPO fund raising of $16 billion and though volatility has slowed or delayed primary issuances, the 2022 pipeline remains strong at an estimated $13 billion, if LIC’s $8 billion issue gets through.