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93% of TTM selling by FPIs are within financials and IT; industrials largely buck the trend except construction materials

* Trailing 12-month (TTM) FPI selling eclipses outflows seen during GFC: The ongoing FPI selling in Indian equities is turning out to be the highest selling spree since the global financial crisis (GFC) of CY08 with TTM FPI cumulative selling in the secondary market of US$53bn vs US$28bn during the GFC, as per provisional flows data from exchanges.

* However, TTM net institutional outflows (FPI flows + DII flows), based on provisional data for secondary market flows, is relatively lower at US$10.6bn compared to GFC peak outflow of US$8.6bn, supported by significant inflows from DIIs of US$42.5bn.

* Consequently, the impact on benchmark indices (NIFTY50, Nifty Midcap) is much lower (15-25% drawdown) compared to GFC.

* Using the final FPI flows data from NSDL, which includes primary inflows as well, net TTM outflow from FPIs is much less at US$32bn supported by record IPO-related inflows over the past one year.

* Consequently, aggregate FPI equity assets stood at Rs41.5trn as of 15th June 2022, which translates into 17% holding of aggregate listed Indian equities (Rs245trn) and is a dip of 300bps from the Mar’21 level of 20%.

* Sectorally, bulk of the FPI selling on 12 month rolling basis has been concentrated around financials and IT (93% contribution) along with FMCG, other services and construction materials whereas metals, power, discretionary consumption and telecom saw inflow.

* FPI selling across market capitalisation size: Based on Mar’22 shareholding filings by listed companies, FPI holdings within the NIFTY50, NIFTY Next 50, NIFTY Midcap and NIFTY Smallcap indices has dipped 188bps, 155bps, 138bps and 113bps to 23.1%, 15.1%, 14.6% and 12%, respectively.

* Rise in SIP flows appears structural (monthly run-rate exceeding Rs110bn), which is also reflected in tripling of mutual fund accounts from 40mn in Dec’14 to 129mn in Mar’22.

* FDI annual run-rate of around US$50bn as a source of financing CAD is absorbing the shock of FPI outflows.

Outlook- Large scale outflows from Indian equities by FPIs has been largely been driven by the fear of aggressive quantitative tightening by the US central bank to tame inflation and relatively higher valuations of Indian equities. However, valuations have rationalised significantly from Oct’21 levels and the fear of a structural increase in inflation is reducing as global commodity prices decline over the recent past which should build confidence of slowing down of FPI outflows incrementally. Risk still remains in terms of elevated CPI inflation and crude oil prices which are yet to climb down meaningfully from their recent peaks.

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