The first time the FPIs sold shares in the Indian markets was in fiscal year 2008-09 when global financial crisis gripped the world economy in the aftermath of the subprime mortgage crisis in the US
Foreign institutional investors (FIIs) have sold shares worth Rs 2,14,217 crore in Indian markets since the start of financial year 2021-22 till June 10, 2022, data from National Securities Depository Limited (NSDL) showed. The magnitude of sell-off by foreign investors has been huge as they have sold 78 per cent of their equity holdings of what they had invested in financial year 2020-21, according to analysis of NSDL data.
The sell-off in Indian markets came after the FIIs purchased shares worth Rs 2,74,032 crore in financial year 2020-21 when the pandemic struck the Indian markets and the Nifty 50 index fell sharply to 7,500 levels making valuations attractive for markets.
Foreign portfolio investors' (FPI) net investment in Indian equities currently stands at 8,24,100 crore. According to analysis of the investment pattern of the last 30 financial years by FPIs, the current financial year is the fourth fiscal where they have sold shares in the Indian equity markets.
The first time the FPIs were net sellers in the Indian markets was in fiscal year 2008-09 when global financial crisis gripped the world economy in the aftermath of the subprime mortgage crisis in the US. In fiscal year 2008-09, FPIs sold shares worth Rs 47,706 crore. In 2015-16, FPIs sold shares worth Rs 14,172 crore, while, in 2021-22 they sold shares worth Rs 1,40,010 crore and since the start of current financial year they have sold shares worth Rs 74,207 crore.
“Selling has been relentless but FII holding is still very high and by when the FII selling will stop is tough to tell,” Vijay Chopra of Enoch Ventures told Outlook Business.
Bond yields have gone up in the US and the UK and when that happens money flows back as the FIIs get safe return on their investment and moreover hot money has practically moved out of every asset class, even from crypto it is travelling back to its destination, Chopra explained.
“Had domestic institutions absent in this scenario the fall in Indian markets would have been worse. However, my fear is what if domestic institutional investors (DIIs) stop buying shares,” Chopra added.
Drying liquidity conditions along with rising interest rates are also leading to outflow of foreign funds, AK Prabhakar, head of research at IDBI Capital told Outlook Business.
"The way market corrected 2008-09 we have not seen that kind of correction in last 14 years because markets were flush with liquidity there were corrections but those were minor ones but at 16-17,000 levels valuation had sky rocketed. Now, liquidity is drying up after 14 years, interest rate regime is also beginning to change earlier we were in falling interest scenario now we are in rising interest rate scenario with liquidity measures getting reversed,” Prabhakar said.