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FPIs selling exceeds 2008 financial crisis outflow, but impact low on benchmark indices; here's why

FPIs selling exceeds 2008 financial crisis outflow, but impact low on benchmark indices; here's why

FPIs selling exceeds 2008 financial crisis outflow, but impact low on benchmark indices; here's why
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By CNBCTV18.com Mar 14, 2022 7:52:18 PM IST (Published)

During the global financial crisis in 2008, the Sensex had crashed nearly 70%. At present, it is trading less than 10% lower than the October peak of 61,766 on the back of support from domestic institutional investors (DIIs).

The foreign portfolio investors (FPIs) are selling their holdings in the Indian markets at the fastest pace since the global financial crisis in 2008, said a report.

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The trailing 12-month (TTM) basis selling tally of FPIs stood at $36 billion, which is higher than $28 billion recorded during the global financial crisis in 2008, an analysis by brokerage ICICI Securities showed.


Overseas investors have been on a selling spree since October on expectations ṭhat the US Federal Reserve would take a hawkish pivot on the back of inflation in the country. Selling picked up speed last month after Russia attacked Ukraine, which led to a surge in global commodity prices, especially oil. Since October, FPIs have pulled out nearly $20 billion from domestic stocks.

However, on the upside, the outflow has a relatively low impact on the benchmark indices on the back of support from domestic institutional investors.

The benchmark Sensex has fallen as much as 15 percent since October. At present, it is trading less than 10 percent lower than the October peak of 61,766.

During the global financial crisis in 2008, the Sensex had crashed nearly 70 percent. The benchmark index had fallen from 20,800 in January 2008 to 8,500 in October 2008.

The difference this time is the strong buying interest shown by domestic institutional investors (DIIs), who have pumped in $28 billion on a trailing 12-month basis.

The TTM net institutional outflows, which is a sum of FPI and DII, stood at $8.2 billion, which is lower than the 2008 crisis peak outflow of $8.6 billion, ICICI Securities said. If one counts the flows into the primary market owing to the record IPO-related inflows over the past one year, the net TTM outflow from FPIs stood at $18.3 billion.

“We are witnessing consistent buying by domestic investors in the face of unprecedented selling by FPIs during rare and extreme fear-inducing events seen over the past few years (COVID pandemic and global brinkmanship due to the Russia-Ukraine conflict)," said Vinod Karki, equity strategist at ICICI Securities.

Aggregate FPI equity assets stood at Rs 45.5 trillion in the end of February, which is around 18 percent holding of the aggregate listed Indian equities at Rs 252 trillion.

Interestingly, FPI selling appears to be lower in mid- and small-cap segments. As per data on shareholding as of December 2021, FPI holdings within Nifty, Next50, NiftyMidcap and NiftySmallcap spaces dipped 118 basis points, 74 basis points, 55 basis points and 29 basis points to 23.5 percent, 16.8 percent, 15.4 percent and 10.7 percent, respectively.

Selling has been mainly confined to financials and IT since these segments constitute the bulk of assets under the custody of FPIs, V.K.Vijayakumar, Chief Investment Strategist at Geojit Financial Services, told PTI.

"An important takeaway from FPI selling is that it is not impacting all segments. For instance, FPIs sold IT stocks worth Rs 10,984 crore in February, but in March IT is one of the best performing sectors," he said.

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