Foreign institutional investor’s (FII’s) ownership of NSE 500 stocks hit a three-year low of 19.5 per cent, suggested a note by BofA Securities. In terms of flows into Indian equities, March 2022, BofA Securities' note said, was the sixth consecutive month of FII outflows (-$5.4 billion, most severe since March 2020) on the back of continued geopolitical risks, sustained elevated inflation led by supply-side issues, rising commodity costs.
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On a month-till date (MTD) basis, April 2022, however, saw the pace of outflow slow (-$1.2 billion), indicating potential stemming/reversal of FII outflows.
On a year-to-date (YTD) basis, calendar year 2022 outflows stood at $15.7 billion.
Domestic institutional investors (DIIs), on the other hand, remained upbeat on the road ahead for the markets with monthly flows touching new highs at $6 billion (+19 per cent MoM), crossing $5 billion mark for the second consecutive month (YTD +$14.6 billion up to March 2022), BofA Securities said.
Given the multiple headwinds, BofA Securities expects markets to be sideways the near-term given inflation impacting volume growth and margins across several sectors.
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“Our year-end Nifty target of 17,000 offers no upside; we prefer financials, industrials, select autos among cyclicals and utilities and healthcare among defensives,” wrote Amish Shah, head of India research at BofA Securities in a recent note.
NSE 500 stocks :: FII ownership
Thus far in 2022, India saw heavy outflows second only to Taiwan, while Brazil led inflows (+$12.5 billion).
“While emerging market (EM) funds have steadily increased allocation to India (19 per cent in Mar-22 vs 13.3 per cent in Jan-21) versus China (34.6 per cent in Mar-22 vs 42.2 per cent in Jan-21), India's overweight position is currently near multi-year lows, with outflows potentially stemming / reversing, this could turn around,” Shah said.
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In terms of sectors, FII inflows were largely skewed in favor of Energy (+$871 million), Utilities (+$39 million) and Healthcare (+$35 million). “Financials (-$3.5 billion), Industrials (-$724 million), Discretionary (-$1.3 billion) saw highest outflows since March 2017. Outflows in IT (-$80 million) slowed significantly, while Materials saw heavy outflows (-$520 million),” the BofA Securities note said.
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Within the NSE500 universe, domestic mutual funds largely remain overweight in financials, Healthcare, Industrials and underweight on Energy, information technology (IT), Staples, Discretionary, and Materials, the brokerage said.