Foreign portfolio investors or FPIs have always been looked upon as the prime drivers of any bull run in the Indian stock market. Historically, no bull run in India has been possible without a huge buying support by foreign investors.
The recent past, however, has shown that FPIs no longer dictate the terms in the Indian stock market, which has shown great resilience amid a huge selling pressure by overseas investors.
Data shows that FPIs have sold shares worth more than $14 billion in the current calendar year (CY22). While earlier this kind of selling pressure by FPIs would have pulled down the Indian market – Global Financial Crisis of 2008 being a prime example – that has not been the case this time.
On the contrary, the benchmark S&P BSE Sensex is up around 4 per cent in the current calendar year, primarily boosted by the buying support from domestic institutional investors (DIIs) and also the retail investor community.
As per data from the Securities and Exchange Board of India (Sebi), DIIs have bought shares worth nearly Rs 95,500 crore in the first three months of CY22. Mutual funds have been net buyers at nearly Rs 70,000 crore in the same period.
Market participants believe that a mix of macroeconomic and geopolitical factors is triggering a trend of heightened selling activity by foreign investors globally, Indian markets is finding support from the domestic investor community.
“FPI investors perhaps do not find value in the market and are selling aggressively. They seem to be feeling that valuations of Indian equities still seem to be on the higher side considering the mid double-digit earnings growth over the next two years,” said Deepak Jasani, Head - Retail Research, HDFC Securities.
“However, retail investors find value and are buying aggressively. Return expectations of retail investors are shaped by returns of the past 1-2 years and one hopes that the corporate earnings will rise to support this expectation of the retail investors,” added Jasani.
Incidentally, the last couple of years have seen a record number of new investors coming to the stock market – a trend corroborated by the incremental growth in the number of new client accounts being registered.
As per the National Stock Exchange (NSE), the market share of individual investors rose by 12 percentage points from 33 per cent in FY16 to 45 per cent in FY21.
“The significant rise in the share of individual investors in FY21 can be attributed to the increase in new investor registrations witnessed since the beginning of the fiscal, which has led to addition of nearly 10.5m (million) new investors in FY21. This year, however, the registrations touched more than 17 million new investors in the first 11 months,” stated the latest monthly bulletin by NSE.