June sees second-highest monthly FPI outflows ever

Amidst global and domestic macroeconomic and fundamental concerns, foreign portfolio investors (FPIs) sold Indian shares worth $6.44 billion in June – the second-highest monthly outflows ever.

The outflows in June were lower only than March 2020 net outflows of $8.4 billion.

More importantly, however, overseas investors have been net sellers for the last nine consecutive months starting October 2021 and have sold shares worth a cumulative $33.6 billion.

Incidentally, this is the longest selling streak by FPIs since the Global Financial Crisis of 2008 when such investors were net sellers for seven months starting May. The cumulative net selling, however, was much lower at $9.71 billion when compared to the latest bout of selling.

Market experts attribute the selling to a combination of factors, including tightening monetary policy by central bankers globally and high valuations – though the ongoing correction has pulled down the Indian benchmarks nearly 15 per cent from their all-time highs touched in October last year.

“Large scale outflows from Indian equities by FPIs has been largely been driven by the fear of aggressive quantitative tightening by the US central bank to tame inflation and relatively higher valuations of Indian equities,” said ICICI Securities, in a recent report.

“However, valuations have rationalised significantly from Oct’21 levels and the fear of a structural increase in inflation is reducing as global commodity prices decline over the recent past which should build confidence of slowing down of FPI outflows incrementally,” it added while highlighting the fact that risk remains in terms of elevated CPI inflation and crude oil prices which are yet to climb down meaningfully from their recent peaks.

Further, according to an analysis by the domestic broking house of the last 12 months of FPI activity, the bulk of the selling has been concentrated around financials and IT (93 per cent contribution) along with FMCG, other services and construction materials.

On the other hand, sectors like metals, power, discretionary consumption and telecom saw inflows.

Meanwhile, FPI holdings in the Nifty companies dipped by 188 basis points to 23.1 per cent in the March quarter, as per ICICI Securities.

Interestingly, even as FPIs have been selling in huge quantities, the Indian stock market has received support from domestic institutional investors – mutual funds, banks and insurance companies among others – along with retail investors who have been investing directly into stocks and also through the mutual fund route.

The SIP flows in May once again breached the Rs 12,000 crore mark – only the second time ever – to touch Rs 12,286 crore. It was the second-highest monthly SIP flows ever after Rs 12,328 crore witnessed in March 2022.