Investment pattern: FII's/DII 2021 India

Indian stock market remained immune to 2nd Covid-19 wave. As we speak the 3rd wave is rising fast, yet markets remain in the hunt.

There are many reasons behind investor’s optimism. Few of them are strong earnings, mass

vaccination drive, net inflows of funds, government’s stimulus package, bullish views of brokerages house. But the recently discovered Omicron variant of covid pulled the markets from its highs where FIIs emerged as a heavy seller of Indian equities.

Questions in everybody’s mind

Are FII investors strong enough to move our markets?

What's the role and significance of domestic investors?

Which are FIIs favorite stocks in India? We will try to figure out answers of these key questions in this article.

FIIs investments in India

Domestic retail investors have done a phenomenal job in supporting the market. But along with the support of domestic investors, foreign investments are also needed for economic development.

FIIs/FDIs are important source of capital in developing economies. Market regulator SEBI has over 1,450 foreign institutional investors registered with it. The FIIs are considered as both a trigger and a catalyst for the market performance by encouraging investment from all classes of investors that further leads to growth in financial market trends.

• HDFC topped the list of FII’s most liked stocks. HDFC Ltd has the highest FII holding of 72.2%.

Here are 6 stocks which have highest proportion of FII holdings:

Apart from the above, here are some other stocks where foreign investors hold significant stake.

Foreign Institutional Investors (FIIs), Non-Resident Indians (NRIs), and Persons of Indian Origin (PIOs) are allowed to invest in the primary and secondary capital markets in India through the portfolio investment scheme (PIS). Under this scheme, FIIs/NRIs can acquire shares/debentures of Indian companies through the stock exchanges in India. For diversifying risk, foreign investors put their money in different sectors.

Let’s take a look at which Indian sector attracted most funds from foreigners:

From the above graphic, it can be clearly seen that the financial services is the most attracted sector which holds 34.5% of foreign funds. As of June 2021, Foreign portfolio investors (FPIs) held US$595

bn worth of domestic equities.

Domestic investments grew significantly

The unseen rally in Indian stock market was supported by both foreign as well as domestic investors. Significant rise in domestic investments has been one of the biggest contributors to the India’s growth story.

Domestic institutional investors are net buyers of Indian equities from past 10 months in a row; they just heavily sold equities worth ₹119.7 billion & ₹163.5 billion in Jan & Feb respectively & after that they keep adding on stocks to their portfolio. Bucking the trend of domestic investors, foreigners are continuously selling equities from May; in these recent 8 months, September is the only month in which they bought equities worth ₹9 billion

Indices took a hit on arrival of Omicron variant

The black line graph in the above chart here shows the pattern of overall inflows of funds in India in 2021. We can see from the chart that in last 3 months i.e. October, November and December, there were net sellers of Indian equities. The major reason behind this is the onset of Omicron wave across the globe. Another reason could be the Fed taper talks or as we are close to the end of US financial year they’re selling heavily, to settle tax rebates and their accounts

Is this the era of Retail Investors?

According to a report by Economic Times, Retail investor participation continued to grow exponentially in FY21 with almost 4.5 million retail investor accounts being added in just the first two months of the fiscal year.

The total number of retail investors increased by an astonishing 14.2 million in FY21.

Are we heading towards another all-time highs?

Currently, Nifty50 stands at 17.2K & Sensex stands at 57.8K. Though the stringent covid measures & fear of third wave dragged indices from its lifetime highs, but the indices still holds the level of 17,000 which shows investors are still bullish in the market. Also as witnessed significant growth in retail & domestic investments which cuts the negative impact created by FII’s sellers to some extent.

For a healthy economy, especially for a developing nation like India, foreign investments is much needed. It could be so that foreigners will once again start buying Indian equities and in next 6 months Nifty50 will move in the range of 16K-19K.

We have seen a major shift in investment trends started in post-pandemic 2020 where retail investors are participating most actively in the market. From April’21-December’21, the FIIs have sold more than 1 lakh crore in the Indian markets, in equities where we saw heavy selling in the months of November and December. In the year 2021 so far, investors were net buyers of Indian equities worth ₹19.2 billion, whereas Indian index Nifty50 grew nearly 23%. One school of thought that might emerge hereby is that until the retail participation and domestic institutional participation isn’t substantial, in a developing market, FII’s can continue to influence the retailers, and can even go against them, because in the end, money does speak.

Always remember the most famous lines,

"An investment in knowledge pays the best interest."

- Benjamin Franklin

Happy & safe investing!