FPI secondary market outflows in FY22 highest since FY09 at Rs 46,000 cr

But they have invested over Rs 53,000 cr in the primary market, indicating investors have been reallocating their holdings without bringing in much fresh capital

Foreign portfolio investors (FPIs) have offloaded shares worth Rs 46,000 crore from the secondary market so far this financial year, the most since FY09. They have, however, invested more than Rs 53,000 crore in the primary market in the same period, indicating that the investors have been reallocating their holdings without bringing in much fresh capital.

A substantial portion of foreign money appears to have made its way to initial public offerings (IPOs). Total FPI investment as anchors stood at Rs 24,477 crore, nearly six times that of last year and more than nine times the amount invested in 2019, the data from Prime Database showed.

One 97 Communications, Zomato and FSN E-Commerce Ventures, all new-age digital companies, received the most by way of anchor investment. FPIs pumped in Rs 7,185 crore in payment major Paytm’s IPO, Rs 2,759 crore in food delivery firm Zomato’s offering and Rs 1,570 crore in online beauty retailer Nykaa.

The steep rally and lofty valuations have led a number of foreign brokerages to turn cautious on Indian equities of late. In a note last week, foreign brokerage Morgan Stanley said that while India remained entrenched in a long-term bull market driven by a likely new profit cycle, the relative performance to emerging markets could pause given strong trailing performance and relative valuations.

“Indian equities are running into many challenges, including the US rate cycle, rising oil prices, elections in key states, potential Covid wave 3,upward inflexion in domestic interest rates, rich headline valuations and strong relative trailing performance,” the brokerage observed, while tactically downgrading India to equal-weight in its GEMs country portfolio.

Morgan Stanley expects earnings to compound 27 per cent annually over the next couple of years and the Sensex to rise 16 per cent to 70,000 by December 2022 in its base case scenario. Its FY2022 earnings estimate has been lowered by 7 per cent, but FY2023 numbers are unchanged. Index returns are likely to trail earnings growth as the market digests trailing returns.

“We call time on the 20-month rally in Indian equities. Our concerns range from elevated energy and broader input price pressures applying downward pressure to margins, the current account balance and thus, currency outlook, the withdrawal of the Reserve Bank of India stimulus, and a lack of upside implied by Indian equities’ typical macro drivers. Rich valuations, a high probability of earnings disappointment, and a potential lack of marginal buyers add to our motivation to book profits on India,” said CLSA’s Chief Equity Strategist Alexander Redman in a note dated November 12 and titled Indian Equities: On Borrowed Time.

Japanese firm Nomura has downgraded Indian equities from ‘overweight’ to ‘netural’, citing unfavourable risk-reward. UBS, while maintaining an overweight stance, noted that India had turned “unattractive” due to “extremely expensive” valuations relative to the Asean countries. Christopher Wood, global head of equity strategy at Jefferies, said its overweight position on India had come under a threat.

The benchmark BSE Sensex has risen about 18 per cent this financial year but had fallen about 4 per cent since November 15.

“For the first half of November, FPIs have been sellers in banking and even in performing sectors like IT. The trend indicates that FPIs are likely to turn sellers at every rise since most foreign brokerages have a sell call on India on concerns of stretched valuations. But retail and domestic institutional investors may turn aggressive buyers if the market dips sharply,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Fed taper, normalisation of earnings, and geopolitical tensions between China and US are likely to dictate FPIs flows for the rest of FY22.