FIIs’ assets under custody plunge to 13-month low amid market correction

A sharp downturn in the Indian stock market, coupled with persistent selling by foreign institutional investors (FIIs), has led to a significant erosion in their assets under custody (AUC), which fell to a 13-month low in February.

As of February, FIIs' AUC stood at Rs 62.38 lakh crore, the lowest since January 2024. This marks a substantial decline of Rs 15.58 lakh crore from its peak of Rs 77.96 lakh crore in September 2024.

The drop follows heavy selling activity, with FIIs offloading Rs 78,027 crore in January and Rs 34,574 crore in February. The selling pressure was particularly pronounced in the first half of February, when FIIs liquidated Rs 21,272 crore, compared to Rs 13,302 crore in the latter half.

Among sectors, the auto industry bore the brunt of the sell-off in the second half of February, witnessing outflows of Rs 3,279 crore. Healthcare and FMCG followed closely, with FIIs withdrawing Rs 2,996 crore and Rs 2,568 crore, respectively. Other sectors that faced significant selling included construction materials (Rs 1,820 crore), financials (Rs 1,647 crore), construction (Rs 1,465 crore), and capital goods (Rs 1,258 crore). Additionally, consumer durables, power, and oil and gas saw outflows of Rs 1,241 crore, Rs 1,234 crore, and Rs 943 crore, respectively.

Despite the widespread selling, FIIs showed a preference for select sectors, with telecom emerging as the biggest gainer. FIIs bought Rs 5,661 crore worth of telecom stocks, while chemicals and media saw modest buying at Rs 112 crore and Rs 34 crore, respectively.

Interestingly, despite the ongoing sell-off, FII ownership in the Indian market edged up to a five-month high of 16.24 per cent in February, compared to 15.98 per cent in January—a level last observed in September 2024.

Indian markets suffered significant losses in February, with the benchmark Sensex and Nifty dropping 5.6 per cent and 5.9 per cent, respectively. Broader indices faced even steeper corrections, as the BSE MidCap index tumbled over 10.5 per cent and the SmallCap index plunged 14 per cent.

Market analysts warn that there are no clear signs of a reversal in the selling trend. While oversold conditions might lead to a technical rebound, FIIs are unlikely to be the driving force behind any recovery.

Experts attribute the sustained outflows to concerns over slowing economic growth, weak corporate earnings, and high valuations. Additionally, attractive risk-free returns in developed markets like the US have prompted FIIs to shift funds away from India.