Foreign investor ownership in Indian equities hits 15-year low

Foreign portfolio investors held 14.02 percent of shares in BSE-listed companies at the end of the September quarter, marking the lowest level since December 2011. This ownership fell nearly 0.4 percentage points sequentially and 1.54 percentage points over the past year, sitting 6.07 percentage points below its December 2020 peak.

Market Flows And Divergence

Despite the declining ownership share, foreign investors turned net buyers in the September quarter by investing 13,970 crore rupees. This followed massive outflows of 1.43 trillion rupees in the June quarter and 1.31 trillion rupees in the March quarter. Meanwhile, domestic institutional investors invested 1.7 trillion rupees in the same quarter, helping absorb foreign selling and pushing mutual fund ownership to a new high of 11.59 percent.

Valuation And Largecap Impact

Mayur Shah of Anand Rathi Advisors pointed to higher US bond yields, a strong dollar, geopolitical uncertainty, and high Indian valuations as reasons for the reduction. The decline was most visible among largecap companies, where foreign investors reduced stakes in 57 percent of the 100 largecaps analyzed during the quarter. Vishad Turakhia of Equirus Securities noted that foreign investors are becoming selective about prices rather than losing faith in India's long-term growth story.

Context

Foreign portfolio investors often rebalance their holdings across emerging markets based on global liquidity conditions and interest rate movements in developed economies like the United States. When bond yields rise globally, overseas investors tend to pull back capital from emerging markets to safer assets, even as domestic institutional funds continue to support local market stability.