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Foreign investors' selloff in Indian equities was the biggest on record in 2022, dragging the benchmark indexes to their smallest annual gain in four years, but analysts expect purchases by cross-border investors to rebound next year.

Foreign portfolio investors (FPIs) sold 1,219.08 billion rupees ($14.73 billion) worth of Indian equities in 2022, till Dec. 29, the biggest selloff in Indian shares in a year since 1993, when data became available.

Volatility in equities triggered by rate hikes globally, and geopolitical concerns were the key reasons for the massive FPI selloff, said Sumit Pokharna, vice president of fundamental research at Kotak Securities.

GRAPHIC : FPI selloff in Indian equities FPI selloff in Indian equities - 

The second-worst FPI selloff was in 2008 at 529.87 billion rupees ($6.40 billion), which triggered a 51.79% fall on the Nifty 50.

This year, however, the index demonstrated resilience and posted an annual gain of more than 4%.

GRAPHIC : Nifty 50 extends gains for seventh year in a row -

"Liquidity is definitely moving towards India. I expect more buildup on liquidity in January, ahead of the union budget," said Deven Choksey, managing director at KRChoksey Holdings.

Foreign funds purchased around 958.78 billion rupees worth of stocks in the second half of 2022, after being net sellers of shares worth 2,173.58 billion rupees in the first half.

FPIs are "staying in bunkers till sirens are blowing" and will pour funds into India once some of the global challenges ease, Kotak's Pokharna said.

Foreign institutional investors will focus on quarterly earnings, Indian Union Budget, and government policies, in the near term, he added.

Among individual sectors, FPIs sold stocks in information technology, oil and gas, and financial services, while they remained net buyers in healthcare, fast-moving consumer goods and capital goods sectors, in FY2022-23.

GRAPHIC : Maximum FPI sectoral inflows and outflows in FY23  -

DOMESTIC INVESTORS WEIGH IN

Meanwhile, domestic institutional investors net bought equities worth 2,734.60 billion rupees in 2022, their best year since data became available in 2008, according to National Stock Exchange.

GRAPHIC : DII flows into Indian equities -

Retail investors send about 140 billion rupees per month to equity mutual funds and this has created a counterbalance to foreign flows, Kotak Mahindra Mutual Fund said in its market outlook note.

Global brokerages, however, expect muted growth for the benchmark Nifty 50 next year, with BofA Securities expecting a jump of about 5% next year, while Nomura is projecting a gain of 3%.