FPI holdings of Indian stocks dip to a decadal low of 16.3% in January

The aggregate holdings of foreign portfolio investors (FPIs) in the Indian stock market decreased to a decadal low. The FPIs now hold around ₹62 lakh crore worth Indian stocks as of January 2024-end, against the aggregate market capitalisation of ₹380 lakh crore.

This implies that FPI holdings in Indian equities fell further to 16.3% at the end of January 2024, which is a decadal low, from 16.6% as of November 2023, according to ICICI Securities.

The lowest holding of FPIs in recent times is driven by incremental selling in 2024 so far, which is around $3.5 billion, and significant outperformance of small caps, where FPIs have lower allocation along with their overall portfolio orientation, the brokerage said in a report.

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In the calendar year 2023, FPI buying in midcaps and smallcaps was much higher than in largecaps, thereby resulting in their holdings of mid and smallcaps rising to 17% and 9%.

As of December 2022, FPIs held 78% of their portfolio within large caps while their holdings in mid and small-caps were at 14% and 8%, based on shareholding data of top-1,000 stocks by marketcap. 

From a macro perspective, an environment of relatively resilient growth in India’s GDP and corporate earnings coupled with rising probability of moderation in interest rates going ahead is positive for institutional flows towards India, said ICICI Securities.

In 2024 so far, FPIs have been net sellers worth $3.5 billion and domestic institutional investors (DII) have been net buyers worth $5.6 billion of Indian stocks. Major FPI outflows were observed in financials, discretionary consumption, FMCG sectors, etc. while inflows have been observed in IT, energy, power, telecom sectors, etc., as per the report.

“On the global front, the hopes of interest rate cut by the US Federal Reserve have been pushed towards the second half of 2024 and the present higher rates would likely stay longer. Hence, the future trajectory of FPI flows into Indian markets will be dependent upon the domestic GDP growth. The overseas investors are expected to stay attracted towards domestic cyclical stocks,” said Vinod Karki, Equity Strategist, ICICI Securities.

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Moreover, FPIs and mutual funds bought Indian stocks worth $21 billion each in 2023. Using the shareholding data of top-1,000 stocks by market cap, the implied sell flows were majorly driven by promoters, other foreign investors (largely FDI) and individuals (direct equities) contributing 40%, 38% and 16%, respectively, of overall selling while moderate selling by insurance companies contributed 6% (includes the effect of share issuances, buyback, etc), the report said.

FPIs and mutual funds buying in mid and small-caps exceeded that of large caps, thereby absorbing the selling by promoters and other foreign investors over CY23.

Sectorally, FPI’s major implicit inflows within mid and small caps have been in financials ( ₹291 billion), industrials ( ₹244 billion), IT ( ₹144 billion), auto ( ₹99 billion), etc., while FPI’s major implicit outflows were in energy ( ₹43 billion), materials ( ₹27 billion), media ( ₹27 billion), etc., the report said.

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