93% of FPI selling in last 12 months came from two sectors; any guesses?

NEW DELHI: Banking and IT are the two sectors, which saw a bulk of foreign equity outflows on a trailing 12-month basis.

In its latest report, ICICI Securities said the bulk of the FPI selling on a 12-month rolling basis has been concentrated around financials and IT, with a 93 per cent contribution along with FMCG, other services and construction materials. The brokerage noted that metals, power, discretionary consumption and telecom saw inflows during the period.

Overall, the trailing 12-month FPI selling has eclipsed outflows seen during the global financial crisis.

"The ongoing FPI selling in Indian equities is turning out to be the highest selling spree since the global financial crisis (GFC) of 2008 with TTM FPI cumulative selling in the secondary market of $53 billion against $28 billion during the GFC, as per provisional flows data from exchanges," it said.

The aggregate FPI equity assets stood at Rs 41.5 lakh crore as of June 15, which translated into a 17 per cent holding of aggregate listed Indian equities (Rs 245 lakh crore and is a dip of around 300 basis points from the March 2021 level of 20 per cent).

That said, ICICI Securities noted that the trailing 12-month net institutional outflows, which include DII flows, based on provisional data for secondary market flows, are relatively lower at $10.6 billion compared to the GFC peak outflow of $8.6 billion, supported by significant inflows from DIIs of $42.5 billion.

Consequently, the brokerage said, the impact on benchmark indices (NIFTY50, Nifty Midcap) is much lower (15-25 per cent drawdown) compared to GFC.

Using the final FPI flows data from NSDL, which includes primary inflows as well, net the trailing 12-month outflow from FPIs is much less at $32 billion supported by record IPO-related inflows over the past one year.

ICICI Securities said the large-scale outflows from Indian equities by FPIs have 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.

But valuations have rationalised significantly from October 2021 levels and the fear of a structural increase in inflation is reducing as global commodity prices decline over the recent past which should build the confidence in slowing down of FPI outflows incrementally, it said.

"Risk still remains in terms of elevated CPI inflation and crude oil prices which are yet to climb down meaningfully from their recent peaks," the brokerage added.

Analysts in an ETMarkets Midyear Survey said they do not expect the situation to improve, as they believe it would take time for the risk appetite to come back.

An old adage goes as: When the US sneezes, the world catches a cold. Analysts said the US recession will have a contagion effect on other economies. Historically, whenever the commodity prices have been elevated, more likely than not, recessions have occurred, said Yesha Shah, Head of Equity Research, Samco Securities.

"This is also the reason why globally, the selloff has continued. In many of the previous deep market corrections and recessions, markets stopped falling when the Fed intervened and loosened the monetary policy. This does not seem likely now, given that interest rates are lower than inflation rates. So should a recession occur, it can become challenging for equity markets to hold their ground," Shah said.

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