Overseas investors offload Rs 30,000 crore of shares since Oct; here’s why

Sustained selling by foreign institutional investors (FII) amid rising inflation concerns have put a brake on the rally on Dalal Street. Data available with depository National Securities Depository Limited (NSDL) showed that overseas investors have sold shares worth over Rs 32,000 crore since October 2021, taking the net outflow to Rs 23,950 crore in the ongoing financial year so far. However, their net inflow stood at Rs 31,792 crore in 2021 till date.

The benchmark BSE Sensex has tumbled 1,225 points, or 2.07 per cent, to 57,901 on December 16 from 59,126.36 on September 30. Likewise, the 50-share NSE Nifty index declined 369.75 points, or 2.10 per cent, to 17,248.40 during the same period.

Why FIIs are selling?

Ajit Mishra, VP-Research, Religare Broking said, “FIIs have increased their selling in Indian markets owing to concerns on the domestic and global front. On the global front, the US Fed’s hawkish statements due to a spike in inflation, uncertainty surrounding the new variant of Covid-19 have impacted sentiments. On the domestic front, weak earnings show and stretched valuations have further added to the woes.”

Kranthi Bathini, Equity Strategist at WealthMills Securities seconds Mishra and said, “Factors like stretched valuations, rising concerns over new Covid-19 variant Omicron, inflation and fed rate hike news have put pressure on overseas inflows since October.”

The US Federal Reserve recently said that it would end its pandemic-era bond purchases in March and increase interest rates thrice in 2022 as the economy nears full employment and the US central bank copes with a surge of inflation. The hike in interest rates in the US could also lead to global funds pulling out money from Indian government securities.

Will the trend reverse?

Mishra believes that the trend will reverse with the recovery in economic growth and corporate earnings. “With global central banks looking at tightening the liquidity situation, we expect a similar trend to continue as Indian markets don’t offer much valuation comfort at this point. However, they are taking the primary market route to invest in companies with long term growth potential. Moreover, India, being one of the fastest-growing economies in the world, would continue to remain one of the preferred investment destinations for foreign investors in the long run.”

Sector-wise exposure

The latest data available with NSDL showed that exposure of global investors in banking and other financial services declined by Rs 1.45 lakh crore to 14.64 lakh crore as of November 30 from Rs 16.09 lakh crore on November 15. Their exposure in oil and gas reduced by Rs 38,996 crore to Rs 4.79 lakh crore, software and services (down Rs 21,337 to Rs 6.84 lakh crore), auto and auto components (down Rs 17,066 to Rs 1.93 lakh crore) and metals and mining (down Rs 12,808 crore to Rs 93,596 crore) during the same period.

Top FII favourites

In the BSE 500 index, overseas investors held at least six stocks in which they had over 50 per cent stake as of September 30. This included HDFC (71.95 per cent), Zee Entertainment (57.18 per cent), Axis Bank (54.53 per cent), Shriram Transport Finance (53.67 per cent), Apollo Hospitals (51.45 per cent) and IndusInd Bank (51.44 per cent). Shares of IndusInd Bank have retreated 16.50 per cent since the beginning of the ongoing quarter. Axis Bank and HDFC also lost 7.43 per cent and 1.96 per cent.

On the other hand, Zee Entertainment, Apollo Hospitals and Shriram Transport Finance have gained 21.55 per cent, 16.07 per cent and 2.54 per cent, respectively, during the same period.

ICICI Bank, Kotak Mahindra Bank, Crompton Greaves Consumer Electricals, Jubilant FoodWorks, Aavas Financiers, Redington (India), Mahindra & Mahindra, HDFC Bank, PVR, Info Edge, India Energy Exchange, TeamLease Services, Cyient, Tech Mahindra and UPL stood among other favourites in which FII held over 35 per cent stake on September 30. Investors should keep an eye on these stocks as any offloading of shares by global investors may put pressure on these stocks.

 

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