FPIs' Share in Indian Market Falls to Lowest in Ten Years at 16.3%

In a significant market trend, foreign portfolio investors (FPIs) have reduced their stake in Indian equities, reaching a ten-year low as of January 2024. Research by ICICI Securities shows that FPIs owned 16.3% of the Indian stock market, which translates to an investment value of Rs 62 lakh crore against a total market capitalization of Rs 380 lakh crore.

This decline to the lowest FPI involvement in a decade is attributed to a combination of factors. Initially, the foreign investors sold off about $3.5 billion worth of stocks at the start of the calendar year (CY24TD). Furthermore, the rapid growth of small caps in which FPIs tend to have less investment also contributed to the reduction in their market share.

Investment Distribution and January Outflows

Traditionally, FPIs have favored larger companies, with December 2022 data pointing to a 78% investment in large caps. However, only 14% was invested in mid-caps and a smaller 8% in small-caps among the top 1,000 Indian listed companies. Over the course of CY23, however, FPIs shifted their focus, buying more mid-cap and small-cap stocks, increasing their stakes to 17% and 9%, respectively.

During January, fiscal challenges faced by large financial institutions like HDFC Bank prompted the most significant one-year FPI withdrawal from the Indian market.

Sector-wise FPI Movements

Analysis of sector-specific movements reveals that mid and small caps experienced major inflows in areas such as financial services, industrials, IT, and auto. Conversely, the energy, materials, and media sectors saw the most substantial outflows from FPIs.

Despite this, mutual funds remained active, with buying seen across several sectors, including private banking and healthcare. The systematic investment plans (SIPs) flows, resisting market volatility, have continued to rise, exceeding $2 billion monthly.

Holistically, January 2024 witnessed significant outflows from active 'market cap' based mutual funds, particularly in the mid-cap, multi-cap, and small-cap categories, reflecting investors' varied appetite for risk and sector positioning.

Looking Ahead: Equity Flows Outlook

From a broader economic perspective, India's GDP growth and corporate earnings remain relatively robust, and the potential easing of interest rates may become an attractive proposition for institutional investors to consider equity flow towards the Indian market. The ongoing selloff by foreign institutions has yet to dampen the optimism among Nifty bulls.

FPIs, Investment, Stocks