FPI exposure in BSE 200 firms falls for 4th consecutive quarter, slips below $300 billion

Foreign portfolio investors (FPIs) cut their exposure to domestic equities in Q4FY16 for the fourth consecutive quarter from their peak investments in Q4FY15. If we go by what analysts say, future foreign inflows would not come so easily with spectre of another US rate hike coming as suggested by Federal Reserve Chair Janet Yellen in her Friday's speech.
 
Data showed, the total foreign ownership in the BSE-200 Index declined to $291 billion in the March quarter from $304 billion in the December 2015 quarter.
 
In percentage terms, FPI holdings in BSE-200 companies came down to 24.5 per cent in the March quarter against 24.8 per cent in the December 2015 quarter, Kotak Institutional Equities said in a note.
 
The FPI exposure in the top 200 hit a peak at $343 billion in Q4FY15, while it hit its lowest level in December quarter of FY12 (lowest in at least 20 quarters). Since Q4 of FY15, FPIs exposure in the BSE-200 stocks has fallen consecutively.
 
Nikhil Kamath, Co-Founder & Director of Zerodha said a lot of reasons resulted in falling of FPIs holding in domestic equities, with the reversal of Fed interest rate cycle the biggest among all.
 
"Devaluation of the Chinese yuan and a cash crunch in the gulf on the back of falling crude prices also fuelled the trend," Kamath said.
 
During the March quarter, the S&P BSE Sensex advanced nearly 3 per cent against a meagre gain of 0.14 per cent in the December quarter. The BSE-200 index, on the other hand, gained 3.49 per cent in the March quarter after a 0.76 per cent fall in the December quarter.
 
FPI inflows in domestic equities stood at Rs 4,496 crore in the fourth quarter against outflows of Rs 3,241 crore in the third quarter. Foreign investors' exposure to banking, pharmaceuticals and automobiles sectors declined the most in Q4FY16.
 
Jimeet Modi, CEO, SAMCO securities believes that handsome price appreciation in these sectors had driven FPIs to take part profits on the counters. As such these are routine reshuffling for maximization of profits, added Modi.      
 

Among BSE-200 stocks, transport finance firm Shriram Transport saw FPIs reducing their stakes by 9.2 percentage points to 43.7 per cent in the March quarter from 52.9 per cent in the December quarter.
 
Meanwhile, the stock fell 11.53 per cent in Q4FY16 against a 7.50 per cent rise in the Q3FY15.
 
A housing finance company LIC Housing Finance saw FPIs cutting their stakes by 8 percentage points to 28.9 per cent in the fourth quarter from 36.9 per cent in the third quarter. However, the stock of LIC added 3.57 per cent in Q4FY16 after 8.16 per cent fall in Q3FY15.
 
Jain Irrigation Systems, Crompton Greaves and Jaiprakash Associates also witnessed FPI outflow to the tune of 4.3-4.7 percentage points in the fourth quarter of FY16, meanwhile, stocks of these companies gained up to 35 per cent.
 
Among bigwigs, FPIs cut stakes in Dr Reddy's, ICICI Bank, Tata Motors, Adani Power and Punjab National Bank. The stocks added 2.20 per cent, 9.52 per cent, 1.26 per cent, 26.76 per cent, respectively.
 
On Fed hike and the recent revision in Mauritius tax treaty, Modi of SAMCO Securities said, "Fed rate hike is only a matter of time, and markets are mature enough to discount the same in an orderly manner."
 
He added that FPIs flow may be impacted in the short term, but in the long term they chase returns which India has plenty to offer, and therefore, the impact will be minimum in the long term.  
 
Modi doesn't see Mauritius tax treaty as a hurdle towards FPI investment coming in India. "India is the fastest growing large economy in the world and there is no reason FPIs will not invest in India, as even after tax incidences, they will still make higher returns than those earned in the developed countries," said Modi.
 
Kamth of Zerodha also sees the Mauritius tax treaty to be positive net-net, which could lead many fund managers to relocate to India.
 
"It's only fair for fund managers using the off-shore route to profit in India be taxable in India, albeit at a lower rate of 7 per cent compared to their Indian counterparts because the present taxation structure has an in-built incentive for them which is unfair to domestic investors or fund managers," added Kamath.  
 
The expert, however, sounded cautious on likely Fed rate hike. "The concerns over declining FPI are likely to aggravate over the coming months as a rate hike by the Fed could cause significant moves on the domestic FPI market with US investors shifting money allocation from India to their domestic markets," said Kamath.