FII ownership of NSE 500 stocks at 3-year low: BofA Securities

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.

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. 

“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.

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.

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.

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