Foreign investors have been cutting their holdings of Indian equities over the past few months, but domestic mutual funds, banks and insurance companies have helped put a floor under the market with their buying.
According to the data from National Stock Exchange of India, foreigners have sold $7.24 billion between Oct. 1 and Jan. 25, but domestic Indian institutions purchased $9.63 billion in that period.
Overseas investors have offloaded $2 billion of local shares in just two days this week, according to the latest exchange data ,after a record withdrawal of $2.9 billion. With this, $19 billion has flown out since Sept. 30, about half of the foreign money local shares lured since the pandemic lows in March 2020. That’s pushed down the rupee to an all-time low.
The current exodus has hit a record, exceeding the foreign outflows seen during the 2008 global financial crisis.
Foreigners have continued to sell Indian stocks, with their withdrawals totaling nearly $10 billion since the end of September. The outflow comes as concerns have grown over valuations after a series of all-time highs for local indexes and the epic flop of the initial public offering for digital-payments firm Paytm. Indian markets will continue to gain momentum, be it in terms of new listings or new account openings .They also expect Indian companies to report an improvement in profits. Foreign institutional investors have invested just under $ 6bn in Indian equities in the first five weeks of 2013. This is nearly a quarter of $ 24.3bn invested in the entire 2012 calendar year.
Institutional investors overseas are allocating more money to emerging markets in 2013 as global risk appetite increased. This means these investors are prepared to invest in high risk high return equity assets. This follows record flows in US-listed equity mutual funds and exchange traded funds. “India received strongest flows in recent times in January 2013 (at $ 1.3bn in four weeks),” said an analysis by Kotak Securities on flows into emerging markets. India is not alone. Equity markets in China and Korea also witnessed large inflows during the same period.
Foreign institutional investors currently own 20.3% of the free-float of BSE 500 index market capitalization, according to the latest data from Securities and Exchange Board of India and Bombay Stock Exchange.
While the impact of the war in Ukraine could weigh on domestic earnings for up to two quarters, foreign investors may return when tensions cool.
There is belief that better growth of both GDP and earnings will again attract the foreign investors.
Written and collated by Arnav Salian