The trajectory of inflation going forward in the US will be a major determinant of the inflow of foreign investors into emerging markets (EMs) including India in general. According to domestic brokerage and research firm ICICI Securities, the overall foreign portfolio investor (FPI) inflows for CY22 can be clearly demarcated in the selling phase of H1CY22 and now resumption of buying in H2CY22.
above Indian stock FPI holdings that saw an increase during the first half of the current year (H1CY22) included Cipla, ITC, HAL, UPL and Power Grid, data analyzed by ICICI Securities showed. Whereas, Tech Mahindra, HDFC, HDFC Bank, L&T Infotech and Mindtree are among the stocks that saw a decrease in FPI holdings during the same period.
FPI sales (about $29 billion including primary inflows) in the first half of 2022 were driven largely by financials and IT and to a lesser extent by discretionary consumption, oil and gas and cement.
“FPI buying in H2CY22 (as on 15 Aug’22) is driven by domestic economy sectors such as consumer discretionary, financial, industry, FMCG and telecom. However, sectors driven by global factors such as oil and gas, IT and metals were sold by FPIs,” the brokerage’s note said.
Meanwhile, domestic institutional investor (DII) purchases stood at $30 billion during H1CY22 which included MF purchases of $16.8 billion in sectors with the highest inflows towards financials, IT, consumer discretionary, auto and oil and gas.
Analysts believe that the US Federal Reserve chairman’s scathing remarks at the Jackson Hole symposium is an extension of the quantitative tightening (QT) cycle that began last year (CY21) and resulted in the largest volume of FPI outflows from India. Was. year period.
The mass outflow, in anticipation of the peak QT cycle of the 1960s–80s, was probably an overreaction that is correcting through the inflow observed since July 2022. Although not as extreme as originally thought, the QT cycle continues, which will result in bouts of volatility from FPIs, according to the brokerage, although a phase of ‘unprecedented relentless selling’ seems to be behind us. Using final FPI inflows data from NSDL, including primary inflows, inflows from FPIs so far in H2FY22 as of 30 August 2022 are $6.8 billion.
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