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Foreign institutional investors: FII ownership in NSE 500 companies falls to 3-year low at 19.5%

As reported, FPIs have been big sellers of Indian equities for the past several months. However, BofA believes that a potential reversal of outflows from the equity markets could see ownership levels turn around in the upcoming months.

As of March this year, exposure to India stood at 19% against 13.3% in January 2021, whereas China was at 34.6% in March against 42.2% in January last year.
As of March this year, exposure to India stood at 19% against 13.3% in January 2021, whereas China was at 34.6% in March against 42.2% in January last year.

Ownership of foreign institutional investors (FIIs) in NSE 500 companies fell to a 3-year low at 19.5% in March, levels seen pre-Covid, a report from BofA Securities highlighted. As reported, FPIs have been big sellers of Indian equities for the past several months. However, BofA believes that a potential reversal of outflows from the equity markets could see ownership levels turn around in the upcoming months.

The assets under management (AUM) of FPIs as of March stood at $619 billion, with energy (16.2%), IT (14.8%) and communication services (4%) witnessing highest allocations whereas allocation to financials and discretionary declined the most. So far, in calendar year 2022, India has seen the highest outflows from global investors after Taiwan, whereas Brazil led with inflows of $12.5 billion. According to the report, emerging market funds, however, have increased allocation to India against China in the last one year. As of March this year, exposure to India stood at 19% against 13.3% in January 2021, whereas China was at 34.6% in March against 42.2% in January last year.

Domestic institutional investors (DIIs),on the other hand, continued to remain upbeat with monthly flows touching new highs at $6 billion, up 19% m-o-m and surpassing the $5 billion mark for the second consecutive month. In CY22, overall inflows from DIIs stood at $14.6 billion, said BofA in a note on Friday. The benchmark Nifty50 gained 4% in March.

According to the report, March saw the most severe outflows since March 2020 at $5.4 billion — on the back of continued geopolitical risks, sustained elevated inflation, led by supply side issues, and rising commodity costs.

According to Bloomberg data, overseas investors had pulled out $8.4 billion from Indian market during March 2020. However, the pace of selling has slowed down of late. In April ,on a month-to-date (MTD) basis, outflows from foreign investors have slowed down to $1.2 billion, while on a year-to-date (YTD) basis, the outflows in CY22 stood at $15.7 billion.

The brokerage further said that it expects the Indian equity markets to remain on the sideways in the near-term. “We expect markets to be sideways near term given inflation impacting volume growth and margins across several sectors. Our year end Nifty target of 17,000 offers no upside but we prefer financials, industrials, select autos among cyclicals and utilities and healthcare among defensives,” Amish Shah, head of India Research, BofA Securities, wrote in a note.

“Among sectors, as of March 2022, FIIs pumped in $871 million in the energy sector, whereas utilities and healthcare saw inflows of $39 million and $35 million, respectively. Financials (-$3.5 billion), industrials (-$724 million), discretionary (-$1.3 billion) saw highest outflows since Mar 2017. Outflows in IT (-$80 million) slowed significantly while materials saw heavy outflows (-$520 million),” Shah wrote in the note.

Highlights
In calendar year 2022, India has seen the highest outflows from global investors after Taiwan, whereas Brazil led with inflows of $12.5 billion

DIIs continue to remain upbeat with monthly flows touching new highs at $6 billion, up 19% m-o-m

BofA believes that a potential reversal of outflows from the equity markets could see ownership levels turn around in the upcoming months

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