$20 bn gone from equities! FII sell-off now worse than the 2008 financial crisis

Selling by foreign institutional investors (FIIs) is in top gear amid the ongoing uncertainty in the global equity market. Data shows that they have offloaded shares nearly Rs 1.50 lakh crore in the second half of FY22 against inflows of Rs 8,530 crore in the first half.
 
In dollar terms, they have sold equities worth $19.82 billion since October 1 last year. The ongoing sell-off by overseas investors is the biggest since the global financial crisis (GFC) in 2008-2009. According to Ambit Asset Management FIIs sold $15 billion of shares during GFC.

The benchmark BSE Sensex has cracked 6.19 per cent to 55,464 on March 10, 2022 from 59,126 on September 30, 2021. Broader indices including the BSE Midcap and Smallcap too tumbled 8.10 per cent and 4.21 per cent, respectively, during the same period. However, heavy buying by domestic institutional investors (DII) including mutual funds and life insurance companies have capped the downside. DIIs have bought shares worth Rs 1.59 lakh crore between October 1, 2021 and March 10, 2022.

Commenting on the outflows by FIIs, Abhishek Basumallick, chief equity advisor, Intelsense Capital said, “FIIs came into risk assets like emerging market equities when central banks in the west pumped huge amounts into the financial system. Now, that the US Fed has signalled a pause and reversal of their easy liquidity policies, money is flowing out. This should abate and subsequently reverse after a while since there aren’t too many major economies that offer stable businesses and decent return prospects.”

Earlier, FIIs have made strong inflows in the Indian equity market since Covid lows. They bought shares worth Rs 2.21 lakh crore from March 2020 to September 2022.
 
Aniruddha Naha, head equities, PGIM India Mutual Fund said, “Given the rising interest rate scenario and some amount of risk-off in the overall environment, one can expect FIIs to continue to sell in the near term.”

However, he added that over the medium and longer period, flows will be driven by macros as well as corporate profitability, where India should do well vis-à-vis other emerging markets.
 
“India offers one of the largest consumer markets and a well-diversified economy, across sectors like IT, pharma, consumption, which are structural in nature and hence will always evince interest from investors both domestic and FIIs,” he said, adding overseas have generally been either investing in the developed world like the US or markets like China, which have underperformed as compared with Indian markets.

On the other hand, B Gopkumar, MD and CEO, Axis Securities said that the FII flows in the emerging market will continue to be volatile till the US Fed announces the exact timeline of the rate hike. Most emerging markets are likely to see currency depreciation in the short term. Following the sharp rise in crude oil prices amid outflows by foreign institutional investors, the rupee recently hit an all-time low of 76.92 against the dollar this week.

“FII will regain confidence in the emerging market, especially India, as robust earnings growth and economic recovery will playout for the remaining 2022,” Gopkumar said.