Banks, IT account for 93% of the Rs 2 trillion selloff by FPIs the past yr

FMCG, construction materials were among other sectors to see large outflow, while metals, power, discretionary consumption and telecom saw inflows

Foreign portfolio investors (FPIs) have sold shares worth more than Rs 2 trillion during the past 12 months in what is their highest selling velocity since the Global Financial Crisis (GFC). A closer analysis of their selling patterns reveals financials and information technology (IT) account for more than 90 per cent of FPI outflows seen since June 2021.

Financials have seen FPI selloff of Rs 1.1 trillion, while IT has seen selling of over Rs 76,000 crore.

Following this, the assets under custody (AUC) of FPIs in the financial sector stood at Rs 12.8 trillion this June, down from Rs 15.2 trillion a year ago. The AUC in the IT sector fell to Rs 5 trillion from Rs 5.7 trillion a year ago.

“Sectorally, bulk of the FPI selling on 12 month rolling basis has been concentrated around financials and IT (93 per cent contribution) along with FMCG, other services and construction materials whereas metals, power, discretionary consumption and telecom saw inflows,” said Vinod Karki and Niraj Karnani, analysts at ICICI Securities in a note.

FPIs are now underweight on both financials as well as IT vis-à-vis their weightage in the Nifty—the two most preferred sectors historically.

Market watchers say it is not that FPIs have taken a particularly negative few towards these two sectors. Given their large free float these are the two main sectors that can easily absorb FPI buying and selling.

The intensity of FPI selling has accelerated in recent months after the US Federal Reserve and other central banks have intensified their fight against inflation.

“Large scale outflows from Indian equities by FPIs has been largely driven by the fear of aggressive quantitative tightening by the US central bank to tame inflation and relatively higher valuations of Indian equities. However, valuations have rationalised significantly from October 21 levels and the fear of a structural increase in inflation is reducing as global commodity prices decline over the recent past which should build confidence of slowing down of FPI outflows incrementally,” add the analysts duo.

The net institutional outflows (FPI and domestic institutional investors (DII) flows combined) are relatively lower due to the higher inflows from domestic inflows. The net institutional inflows for the last 12 months stand at $10.6 billion against $8.6 billion during the global financial crisis, supported by significant inflows from DIIs of $42.5bn.

This has helped mitigate the market fall. The Nifty is unchanged over the past 12 months despite such a large FPI selloff.

The ICICI Securities states that elevated CPI inflation and crude oil prices which are yet to climb down meaningfully from their recent peaks, are significant risks.