FPI Selloff In FY22 Worst On Record; Two Key Sectors Bear The Brunt
FPIs have sold domestic equities in seven of the 11 months this fiscal.
Overseas investors have been pulling out of Indian equities for five months in the worst-ever exodus from domestic stocks, amplified by global turmoil triggered by Russia’s invasion of Ukraine.
Foreign portfolio investors have net sold domestic equities worth Rs 1.09 lakh crore ($14.6 billion) since October, according to Bloomberg data. They have withdrawn in seven of the 11 months this fiscal.
According to data from NSDL, the net outflow of Rs 1.29 lakh crore from stocks so far in the 2021-22 financial year has been the highest on record.
Domestic investments, however, have offset the FPI selling pressure. Domestic mutual funds have net invested Rs 98,624 crore in Indian equities between October and February.
FPI outflows started with expensive valuations. The possibility of a US Fed rate hike, inflationary pressures, higher bond yields increased the pace. Worsening global macroeconomic conditions after Russian war in Ukraine left overseas investors even more spooked.
“FPI outflows increase as systematic risk spikes,” ICICI Securities said in a report. The geopolitical crisis could extend the elevated commodity prices that are likely to increase the input cost pressures felt over the past several quarters across sectors and will thereby cloud the earnings outlook. “Earnings outlook for most sectors which rely heavily on commodities as raw materials will get impacted (industrials, auto, consumption, etc).”
Sectors With Most Foreign Inflows
Retail, capital goods, insurance, telecom services, and textiles are among the top five sectors that witnessed the most FPI equity inflows since October.
Better performance in urban cities, store additions and relaxation in operating hours after the second and third Covid waves aided the retail segment, while capital goods prospects improved on a pickup in ordering activity, better project efficiency, strong capex spending by the government, and cash flow generation by various companies.
A relief package and tariff hikes worked in favour of the telecom sector. The sector revenue, according to Motilal Oswal, is likely to see 10% sequential growth in Q4 FY22 as the full beneficial impact of tariff hikes accrues.
Sectors With Most Foreign Outflows
Financial services (including banks) saw the biggest outflows since October, followed by information technology, and household and personal products.
Apart from rising global tensions, FPIs pulled out of the banking and financial services—one of the sectors with heavy overseas holding—because of their higher provisions, elevated operating expenditures, and muted gold demand.
A demand slowdown and high commodity inflation marred the attractiveness of the household and personal products sector.
The oil and gas sector was impacted due to volatile oil prices, declining marketing margins, and falling petrochemical margins. The construction materials sector faced weak demand and higher energy cost pressures. Coal prices remained volatile and imported coal/pet coke prices increase. Also, cement price hikes were lower than expected.
(Sector reasons are compiled from research reports of Motilal Oswal and ICICI Securities).