Fears of quantitative tightening by the US Federal Reserve to check inflation have triggered selling of Indian stocks by foreign portfolio investors (FPIs). In fact, the current spree FPI sales According to an analysis by ICICI Securities Ltd., Indian equities are witnessing the highest ever exposure since the 2008 global financial crisis.
In a June 30 report, the domestic brokerage house said, according to provisional flow data from exchanges, the last twelve months (TTM) FPI cumulative sales in the secondary market during the 2008 financial crisis stood at $53 billion.
Sector-wise, the bulk of FPI sales on a rolling 12-month basis are focused on financial and IT (contributing 93 per cent) as well as FMCG, other services and construction materials. On the other hand, stocks in the metals, power, discretionary consumption and telecom sectors saw inflows.
Major Indian equity benchmarks have not fallen sharply despite sharp sell-off in FPIs, driven by buying by domestic institutional investors. “Consequently, the impact on the benchmark index (NIFTY50, Nifty Midcap) is much less (15-25% decline) than that on the GFC (global financial crisis),” the report said.
According to ICICI Securities, the growth in SIP inflows appears to be structural (monthly run-rate in excess of Rs 110 billion), reflected by a tripling of mutual fund accounts in December 2014 to 129 million in March 2022. SIP is short for systematic investment plan.
Meanwhile, after continued FPI sell-off, Indian stocks have been undervalued from recent highs.
Indian stocks valuations have rationalized substantially from October 21 levels and fears of a structural rise in inflation are easing as global commodity prices eased, leading to FPI outflows, said an ICICI Securities report. There should be confidence in slowing down growth. However, risks remain in the context of higher retail inflation and crude oil prices, which have not yet come down meaningfully from their recent peak, it cautioned.