Why FII selling should worry you

FIIs hold over 40% of free float

Foreign institutional investors hold 43.4% of the publicly held shares or free float in Indian markets. 

 

Selling by FIIs, who have been the biggest buyer of Indian stocks in the last decade, could hit sectors which have experienced high inflows, according to an India Strategy report by Motilal Oswal Securities.  

 

“If FII selling were to continue in coming months, we believe that sectors that saw high allocations earlier, will be impacted,” said the July report authored by Navin Agarwal, Rajat Rajgarhia and Dipankar Mitra. 

 

The report noted that FII have bought $124 billion in the last ten years, over half of which came in since 2010. Foreign institutions have bought $67 billion since January 2010.They were net sellers by $1.6 billion in Indian equities during June. A combination of fears over the US central bank scaling back its liquidity injections into the market as well as domestic issues in India have affected sentiment according to analysts. 

 

If the selling in June develops into a major trend at a time when FII free float holding is over 40% and overall holding is at an all-time high of 20.5%, a number of sectors which were beneficiaries of the flows could be impacted, according to the trio.

 

The report noted that Financial excluding public sector banks accounted for 25% of flows. Utilities accounted for 12%, Consumer for 11%, Technology for nine% and Autos for 8%.