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Foreign funds ownership in domestic equities hits 19.5%, lowest since March 2019

Foreign funds' ownership in the domestic equities was at 18.6 percent in December 2017, the lowest in five years, and the peak was in December 2021, when they owned 21.4 percent of domestic equities.

May 09, 2022 / 06:29 AM IST
Representative image

Representative image

Foreign funds' ownership in domestic equities fell to pre-COVID lows and hit a multi-year low of 19.5 percent in March this year in NSE500 companies valued at $619 billion, shows an analysis. At 19.5 percent, the FPI ownership in March 2022, is the lowest in the past three years, when it was 19.3 percent in March 2019, which was a pre-COVID period.

On a year-on-year basis, their ownership stood at 21.2 percent, the second-highest on record in March 2021, according to a report by the Wall Street brokerage Bank of America Securities India. Foreign funds' ownership in the domestic equities was at 18.6 percent in December 2017, the lowest in five years, and the peak was in December 2021, when they owned 21.4 percent of domestic equities.

Significantly, the share loss of foreign portfolio investors (FPIs) has been well corrected by the steeply rising ownership of the stocks by domestic funds, who pumped in $6 billion in March and $14.6 billion in FY22, the report said. Of the $619 billion of FPI ownership, the highest incremental allocation were in energy stocks with 16.2 percent, followed by IT at 14.8 percent, and communication services at 4 percent.

In overall allocation, financials still led the chart with 31.4 percent followed by discretionary (9 percent). March alone saw the sixth consecutive month of FPI outflows, which was the most severe since March 2020 (after the pandemic scare) on the back of continued geopolitical risks, elevated inflation led by supply side issues, rising commodity costs, said the report.

Even amidst the pullout emerging market funds have been steadily increasing their allocation to India (19 percent in March vs 13.3 percent in January 2021) as against China (34.6 percent in March vs 42.2 percent in January 2021). Similarly, MSCI India valuation premium to emerging markets is still at 38 percent and to the world at 10 percent above the respective long-term average remains elevated, but in the long-term, this premium is justified as India is better placed among emerging markets, the report said.

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Apart from India, other emerging markets, including Taiwan, Korea, and the Philippines also saw massive outflows so far this fiscal. The record fall was mainly due to the massive outflows of $5.4 billion in March and a whopping $15.7 billion in FY22. Such a massive pullout came after they pumped in $23 billion in 2020 and $3.7 billion in 2021.

The Wall Street brokerage expects the market to trade sideways in the near-term, given the soaring inflation impacting volume growth and margins across several sectors. The brokerage has not offered any upside to its December Nifty target of 17,000 points but said it prefers financials, industrials, select autos among cyclicals and utilities and healthcare among defensives.
PTI
first published: May 8, 2022 04:19 pm
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