 "Custodians, who act as brokers for foreign portfolio investors (FPIs), plan to increase fees once the market regulator's directive on faster remittances comes into effect on September 9.")
The latest selloff by foreign portfolio investors (FPIs) is only part of a decade-long trend of cutting exposure to Indian equities. FPIs have cumulatively sold nearly ₹2.43 trillion (about $28.3 billion) worth of Indian equities on a net basis over the past two quarters, further reducing their stake in listed companies.
FPI ownership of Indian equities has been steadily declining from its peak in 2015. Their stake stood at 19.1 per cent at the end of December 2024, slightly up from the 18.8 per cent at the end of September 2024, but still near the lowest since June 2010, when it stood at 18.2 per cent.
FPIs have trimmed holdings (quarter-on-quarter basis) in 14 of the past 20 quarters and in 24 of the past 40 quarters. By contrast, they had pared stake in 15 of 40 quarters between June 2005 and March 2015.
Analysts expect FPI ownership of Indian equities to decline further in the current quarter. The analysis is based on quarter-end promoter stake and market capitalisation data from 1,176 listed companies across the BSE 500, BSE Midcap, and BSE Smallcap indices, which had a combined market capitalisation of ₹382.3 trillion as of Wednesday, accounting for 94.4 per cent of the total market cap of all BSE-listed companies.
The sample has been adjusted for major mergers and acquisitions, including HDFC’s merger with HDFC Bank, Hindustan Unilever’s acquisition of GSK Consumer, Sesa Sterlite’s merger with Sterlite Industries, and Aditya Birla Nuvo’s merger with Grasim Industries.
FPI investment in India peaked in the March 2015 quarter, when foreign investors effectively owned 25.7 per cent of India’s top listed companies. With the latest decline, FPI ownership is now down by 660 basis points, or about a quarter, from its peak.
Analysts point to a “structural” decline in FPI investment, largely driven by a slowdown in corporate earnings growth in India. “Essentially, FPIs have shown a general lack of participation in the Indian equity market over the past decade,” said Dhananjay Sinha, co-head of research and equity strategy at Systematix Institutional Equity.
“The earnings growth differential that Indian companies once enjoyed over their global peers has narrowed, prompting FPIs to reduce their allocations to India,” said Sinha.
“In contrast, FPIs were strong participants in the 2004-2015 period, except during the 2008 global financial crisis and the 2012 Eurozone crisis, when they briefly turned net sellers,” Sinha added. He expects FPIs to continue booking profits in the near term unless corporate earnings improve.
FPI stake in Indian equities rose from 18.5 per cent in September 2004 to 21.2 per cent in June 2007, peaking at 25.7 per cent before the 2008 financial crisis triggered a selloff, reducing their stake to a record low of 16.8 per cent by the March 2009 quarter.
Others attribute the current selloff to profit booking, as FPIs cash in on the sharp appreciation in the market value of their holdings. “The market capitalisation of listed Indian companies has risen nearly fivefold in the last decade, significantly increasing the market value of FPI investments,” said G Chokkalingam, founder and CEO of Equinomics Research, adding, many are now taking profits as they no longer see comfortable valuations in several stocks.
He expects this profit-taking to persist for another quarter, after which FPIs may turn net buyers in the second half of 2025.
The recent FPI selloff has resulted in only a modest rise in their cumulative net investment (at purchase price or book value) in India. As of now, their cumulative net investment stands at around $200 billion, roughly the same as in the December 2020 quarter.
Over the past decade, from March 2015 to now, net FPI investment has grown at a compound annual growth rate (CAGR) of just 1.8 per cent, down sharply from the 17.2 per cent CAGR recorded between March 2005 and March 2015.
Since March 2015, FPIs have made fresh investments worth $32.6 billion, compared with $133.5 billion between March 2005 and March 2015. For comparison, FPI holdings in Indian equities are currently valued at $846 billion, down from their peak of $1.02 trillion in September 2024 but significantly higher than $386 billion in March 2015.
