Foreign funds' share in India equities at 19.5%, lowest since March '19

Foreign funds' ownership in domestic equities fell to pre-COVID lows and hit a multi-year low of 19.5 per cent in March this year in NSE500 companies valued at USD 619 billion, shows an analysis.

At 19.5 per cent the FPI ownership in March 2022, is the lowest in the past three years, when it was 19.3 per cent in March in 2019, which was a pre-COVID period.

On a year-on-year basis their ownership stood at 21.2 per cent, second highest on record in March 2021, according to a report by the Wall Street brokerage Bank of America Securities India.

Foreign funds' ownership in the domestic equities was at 18.6 per cent in December 2017, the lowest in five years, and the peak was in December 2021, when they owned 21.4 per cent of domestic equities.

 

Significantly, the share loss of foreign portfolio investors (FPIs) has been well corrected by the steeply rising ownership of the stocks by domestic funds, who pumped in USD 6 billion in March and USD 14.6 billion in FY22, the report said.

Of the USD 619 billion of FPI ownership, the highest incremental allocation were in energy stocks with 16.2 per cent, followed by IT at 14.8 per cent, and communication services at 4 per cent.

In overall allocation, financials still led the chart with 31.4 per cent followed by discretionary (9 per cent).

March alone saw the sixth consecutive month of FPI outflows, which was the most severe since March 2020 (after the pandemic scare) on the back of continued geopolitical risks, elevated inflation led by supply side issues, rising commodity costs, said the report.

Even amidst the pullout emerging market funds have been steadily increasing their allocation to India (19 per cent in March vs 13.3 per cent in January 2021) as against China (34.6 per cent in March vs 42.2 per cent in January 2021).

Similarly, MSCI India valuation premium to emerging markets is still at 38 per cent and to the world at 10 per cent above respective long term average remains elevated, but in the long-term, this premium is justified as India is better placed amongst emerging markets, the report said.

Apart from India, other emerging markets, including Taiwan, Korea and the Philippines also saw massive outflows so far this fiscal.

The record fall was mainly due to the massive outflows of USD 5.4 billion in March and a whopping USD 15.7 billion in FY22. Such a massive pullout came after they pumped in USD 23 billion in 2020 and USD 3.7 billion in 2021.

The Wall Street brokerage expects the market to trade sideways in the near-term, given the soaring inflation impacting volume growth and margins across several sectors.

The brokerage has not offered any upside to its December Nifty target of 17,000 points but said it prefers financials, industrials, select autos among cyclicals and utilities and healthcare among defensives.