If history is a guide, the biggest sell-off of Indian stocks to foreigners since the global financial crisis is nearing an end, with any turnaround likely to lead to major holdings among foreign investors.
This view of Bloomberg Intelligence follows a $10 billion net sale by foreign institutional investors local stock Since October, the most since 2008, on concerns of the US Federal Reserve tightening policy faster than expected. In January alone, FIIs dumped $4.8 billion in shares, the largest outflow among major emerging markets and the second highest monthly tally for India.
Nitin Chanduka and Kumar Gautam, analysts at Bloomberg Intelligence, wrote in a note, “The current sharp sell-off may indicate a significant move. In past instances of major FII exodus from India, overseas sales have generally decreased from peak to trough. ” With the sole exception of the 2008 crisis, outflows were closer to $8-$10 billion.”
A break in this continued sell-off would also be a shot for high foreign-owned stocks, especially for financial and technology companies, as there is a close correlation between performance and fund flows. Housing Development Finance Corp., HDFC Bank Ltd., ICICI Bank Ltd. and Infosys Ltd. are among the firms mentioned in the report.
“The average monthly correlation between returns and foreign inflows is over 70% over the past five years,” analysts said. “Since foreign derisking has reached historic peaks, high foreign-owned stocks could rally.”
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