Markets exhibited a stellar show in the June quarter as the Sensex delivered 19 per cent returns during the same period, the most since 2009. The BSE-500 meanwhile trounced Sensex with 21.3 per cent returns but lacked support of foreign portfolio investors (FPIs) whose holdings fell to an eight-year low of 11.6 per cent in Q1FY21. Nonetheless, the current stakes are almost 250 basis points above the decade low of 9.2 per cent recorded during the global financial crisis period.
The aggregate FPI ownership, as percentage of overall holdings, has incessantly reduced in the sample since September 2019. It was at 12.4 per cent in the March quarter, which reduced to 11.6 per cent in June 2020. It has declined 210 basis points since June last year. "This is due to heavy selling by FIIs triggered by the risk-off approach initiated in global equities post the COVID-19 issue causing standstill in world economy. The selling was heavier in more volatile emerging economies like India," said Vinod Nair, Head of Research at Geojit Financial Services.
FPIs sequentially reduced stakes in almost two-third of BSE 500 stocks and their holdings in some 19.2 per cent companies have continually declined since Q2FY20.
In the past one year, their sectoral bets saw considerable churning. Firms in the telecom and diamond & jewellery sector fell out of favour with over 600 basis points reduction in the FPI holdings. The dominance of banking and financial stocks moderated from 41 per cent to 40.8 per cent. However, their stakes in hospitality and media & entertainment companies rose over 200 basis points, during the period.
The domestic investors followed the suit as the absolute holdings of mutual funds/ UTI fell from 6.7 per cent in March 2020 to 6.4 per cent in June 2020. "Redemption pressure by retailers in MFs due to weak performance of schemes during the medium-term while increase in world economy uncertainties lead to profit booking and fall in financial assets. At the same time, it is surprising to note an increase in retail investors' investment through direct equity," Nair added.
He expects the market momentum will be tested in the near-term due to weak second set of ongoing Q1 results, all-time high valuations, increase in US-China trade war, local lockdown, high volatility in global currencies and regulatory change in margin funding. Institutional investors would make a comeback with a gradual fall in the spread of infection and re-opening of the economy.