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

After the record USD 23 billion of additional investments in the domestic equities in FY21, foreign funds have massively slashed their fresh exposure to the country to USD 3.7 billion in FY22, also pairing down their holdings in NSE500 to 19.9 per cent or worth USD 582 billion, down from their peak of 21.4 per cent, shows a brokerage report.

During the current fiscal till early this week, the cumulative FPI outflows touched a record USD 14.6 billion of which March alone saw them taking out as much as USD 5.4 billion, while February saw another record pullout to the tune of USD 4.7 billion, according to an analysis by Wall Street brokerage Bank of America Securities India.

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

On the other hand, allocation to financials was down 107 bps to 31.5 per cent, discretionary down by 49 bps to 9.1 per cent.

As against this the domestic funds' holding in the NE universe stood at USD 265 billion only as of February 2022, on the back of USD 13.1 billion fresh allocation.

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

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

As of June 2021, the value of FII investment was only USD 592 billion, which means that as the market rallied frenetically, their holding value jumped by USD 38 billion even though their net incremental investment was almost nil between this period.

According to the report, the market is not bleeding badly because domestic institutional investors have been very active and have pumped in USD13.1 billion in the year of which USD5 billion were in February alone, leaving the net outflow from the market only at USD1.5 billion.

According to the report, the USD 5.4 billion of FPI outflows in March were the sixth consecutive month of outflows taking the cumulative pullout to USD 14.6 billion on the back of heightened geopolitical risks.

And 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. The outflows gathers further momentum with the US Fed hiking rates by 25 bps and stuck its six more rounds of rate hike this year.

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

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

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

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

Year 2021 saw the primary market on a song with saw record IPO fund raising of USD 16 billion and though volatility has slowed/delayed primary issuances, the 2022 pipeline remains strong at an estimated USD13 billion of LIC's USD8 billion issue gets through.