Currency woes: FPIs take deeper cuts in portfolios than domestic players

Domestic buyers are increasing their stakes even as foreign investors have been exiting, noted an April 27 India Equity Strategy Report by Morgan Stanley

Foreign portfolio investors (FPIs) have seen deeper cuts in their portfolio than domestic players as the rupee touched an all-time low against the dollar.

One dollar was worth Rs 77.53 on Monday, a record low. It was at 77.32 on Tuesday. A fall in the rupee worsens the returns for foreign portfolio investors. The value of any Indian holdings are lower in dollar terms when the rupee falls against the greenback.

The benchmark returns are correspondingly worse for the S&P BSE Dollex 30 index compared to the S&P BSE Sensex from the all-time high. The Sensex is an index of 30 large companies, the movement of which is seen to be broadly representative of how the market is doing. The Dollex computes the returns of the Sensex in dollar terms. It can be considered a better barometer for foreign institutions who deal in dollars.

The S&P BSE Sensex has fallen 12.7 per cent from its all-time high of 62,245.43. It closed at 54,364.85 on Tuesday. The S&P BSE Dollex 30 index is down 15.4 per cent in the same period (see chart 1). Foreign portfolio investors have been net sellers by Rs 1.4 trillion since the beginning of 2022, shows depository data.

A comparison with its peers shows that others may have done worse. The MSCI Emerging Markets Index is made up of 1,398 stocks from 24 emerging market countries. It is down 17.6 per cent. The MSCI World Index is made up of 1,539 stocks across 23 developed markets. It is down 17.3 per cent. The comparable MSCI India index is down 9.7 per cent (see chart 2).

Some of the relative resilience is said to have been because of strong domestic buying. Mutual funds were net buyers by Rs 1.8 trillion in the financial year 2021-22 (FY22). The FPI selling during the same period was Rs 1.4 trillion.

Domestic buyers are increasing their stakes even as foreign investors have been exiting, noted an April 27 India Equity Strategy Report by global financial services major Morgan Stanley. The report was authored by equity analyst Sheela Rathi and equity strategists Ridham Desai and Nayant Parekh. A hundred basis points (bps) is one per cent.

“The combined holdings of domestic mutual funds and direct households in stocks have risen over 600bps since 2015 whereas those of foreign portfolio investors (FPI) have declined about 150bps,” said the Morgan Stanley report.

Dhiraj Sachdev, managing partner and chief investment officer at domestic investment firm Roha Asset Managers said that they are continuing to invest even during this bout of correction; putting capital to work in cash flow generating companies where the valuations are attractive.

“In the market you have to take advantage of…lower prices,” he said.

U R Bhat, co-founder and director, Alphaniti Fintech said that the continuing strength of the dollar, hawkish interest rate outlook at troubles over Covid-19 in China and geopolitical tensions in Ukraine will like keep the selling pressure on from foreign investors; though there may be some pocket of value that they may look to exploit with the March quarter results coming in.

“On the whole…they will continue as net sellers,” he said.