Stakes fell by 270 basis points (bps) in one year and by 50 bps over a quarter. Foreign institutions reduced their stake in nearly three out of five stocks. The analysis covered 398 BSE 500 companies for which the latest shareholding data is available.
The sell-off was triggered in part by global central banks abandoning accommodative monetary policies amid soaring inflation, and now, due to the war in Ukraine, which has increased input costs for businesses. . “The reversal in fund flows helped the dollar, another reason to aggressively withdraw funds from emerging markets (EM),” said Shrikant Chouhan, head of equity research (retail), Kotak Securities.
With interest rates expected to rise further in the US, the selling streak is unlikely to end soon. “Much will depend on when commodity inflation and supply shortages end and when central banks signal they are done with raising rates,” said research chief Deepak Jasani. on retail, HDFC Securities. The funds withdrawn will, among other things, be diverted to other markets such as Australia, Indonesia or Malaysia which could benefit from high commodity prices and whose valuations are better than those of India, he said. -he adds.
Despite the dumping of equities across all segments and the massive sell-off of auto, financial and building materials stocks in 2021-2022, REITs have added sectors selectively to their portfolios. Retail trade, telecommunications services, metals and mining, and textiles together recorded net inflows of ₹35,322 crores last fiscal year. Sectors that manage to pass on rising input costs to consumers without losing market share gain.
“Historically, during periods of high inflation, commodity stocks have a dream due to better realizations and optimal operational efficiency,” said Nitin Agrawal, managing director of Torus Oro, a financial company. Consumer stocks are affected in episodes such as silver losing its purchasing power, he said, adding that consumer and financial stocks could still face price pressures as catalysts short-term growth is not visible.
With valuations remaining high in India, the outflows can be seen through the prism of profit booking, said Suvodeep Rakshit, senior economist, Kotak Institutional Equities.
The REIT sell-off in financials continued in the first half of April, with exits from ₹3,264 crores, the biggest of any sector in the period.
Even before the war, REITs had been selling on Indian equity markets since October. However, they are not discouraged in the primary markets, which include initial public offerings (IPOs), qualified institutional purchases (QIBs) and rights issues.
During the IPO boom of 2021-22, which saw 53 issues mop up a record ₹1.1 trillion capital market investors, foreign and domestic, have jumped on the bandwagon.
Now that the Life Insurance Corp of India (LIC) IPO is finally set to see the light of day this week, primary markets will breathe a sigh of relief. Worthwhile Problems ₹1 trillion waiting in the wings to tap the markets in 2022.
“REITs may not come back strong now compared to the first half of FY22 unless the valuations offered at the IPO are lucrative,” Jasani noted. However, India-focused funds will continue to have good IPOs, although the level of oversubscription and euphoria may not be similar, he said.
As foreigners flee, domestic investors hold the fort. Mutual funds (MF) have invested ₹1.4 trillion since October. The strong inflow can be attributed to the lack of real returns in most asset classes, which made equities attractive, and strong rolling returns continued to bolster household return expectations, Rakshit said.
In previous periods of steep stock market declines as well, MFs have largely countered the REIT panic. During the 2008 crisis and amid global growth concerns around 2015-2016, REITs cumulatively retreated by nearly ₹80,000 crore, while MF bought shares worth ₹95,000 crore.
“Domestic institutions and mutual funds are definitely emerging as key drivers in times of uncertainty,” Chouhan said.
It has also kept India’s indices supported: the Nifty 50 is down just 8% from its October 2021 high. In previous instances, bouts of selling have dragged markets over 20%.