Are we worse off than we were in 2008? Foreign investors seem to think so

• In the last 12 months, FPIs have sold twice as much as they did in 2008 during the global financial crisis.
• June was the worst month, recording the highest sell off in 2022.
• The exodus of foreign investors has left a huge scar on the markets as Sensex corrected nearly 11% in 2022.

Foreign portfolio investors or FPIs have been selling their investments in the Indian equity markets even more aggressively than what was witnessed during the 2008 global financial crisis.

In fact, this selloff in the last 12 months is twice as much as that seen in 2008, when the sub-prime crisis hit the US, sinking banks, financial markets and more.

“The ongoing FPI (foreign portfolio investors) selling in Indian equities is turning out to be the highest selling spree since the global financial crisis of 2008 with trailing 12 months FPI cumulative selling in the secondary market of $53 billion vs $28 billion during the global financial crisis,” said a report by ICICI Securities.

The trend is the same with foreign institutional investors or FIIs as well. June is the worst month of 2022 till date, which saw the highest selloff.

FIIs have pulled out more than ₹51,000 crore ($6.33 billion) in June from the Indian markets, including equity, debt and hybrid assets. This compares with ₹50,000 crore that they invested in the whole of 2021.

Indices correct sharply
The exodus of foreign investors has left a huge scar on the markets as Sensex corrected nearly 11% in 2022.

“Large scale outflows from Indian equities by FPIs has largely been driven by the fear of aggressive quantitative tightening by the US central bank to tame inflation and relatively higher valuations of Indian equities,” said analysts at ICICI Securities.

Rising inflation because of the Russia-Ukraine crisis has made foreign investors lose appetite for Indian assets. Risky equity markets are making them shift funds to US debt markets, which are much secture and offer attractive returns amid rising interest rates scenario.

Most of the FIIs in India are from the US as per recent data.

Resurgence in the US dollar, disappointing global economic data and aggressive monetary policy stances by several central banks across the world had led to concerns about slowing economic growth and the possibility of a recession next year.

Apart from Indian equity markets, global indices too have been crashing and some of them have turned bearish.

IT, financial services bear the brunt
A bulk of the selling has been in sectors like financial, IT, FMCG and other services and construction materials whereas metals, power, discretionary consumption and telecom saw an inflow, according to ICICI Securities.

Table: FPI holdings fall in 2022
Source: ICICI Securities

However, after the sharp fall, the valuations look good, which might result in renewed investor interest.

“Valuations have rationalized significantly from October 2021 levels and the fear of a structural increase in inflation is reducing as global commodity prices decline over the recent past, which should build confidence of slowing down of FPI outflows incrementally,” said the report while mentioning prevailing risk from elevated retail inflation.

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