Foreign funds break their sell-off streak

The foreign funds investing in the Indian equity markets have broken one of the worst sell-off streaks in history, as they ended the month of May as net buyers.

During May 2020, Foreign Institutional Investors (FIIs) bought net shares worth Rs 13,914.49 crore -- selling Rs 1.42 lakh crore equities while buying Rs 1.55 lakh crore equities.

Analysts attribute the phenomenon to the bottom-fishing and short-covering by foreign investors, who closed their short positions due to the decline in the share prices.

A risky strategy, bottom fishing is investing in assets that have experienced a decline, due to intrinsic or extrinsic factors, and are considered undervalued.

Stake sale at telecom major Bharti Airtel also aided the inflow of foreign funds into India.

Prior to this, in the first four months of the calendar year 2020, foreign funds sold Indian shares heavily, amounting to about Rs 90,000 crore, amid global equity meltdown. This also included Rs 65,816.7 crore worth of unprecedented withdrawals in the month of March.

As a result of the foreign fund inflow, despite the rise in crude oil prices to the extent of 56.74% uring the month of May, the Indian rupee remained stable and traded in the range of 75-76 against the US dollar.

However, in a worrying trend, a report from brokerage house Motilal Oswal Financial Services said in Q4FY20, FIIs reduced ownership in 90% of Nifty50 companies quarter-on-quarter (QoQ).

FII holdings in Nifty 500 hit a five-year low, declining 140 bps quarter-on-quarter (QoQ) and 80 bps year-on-year (YoY) to 21% in Q4FY20.

In contrast, DIIs increased stake in 61% of Nifty 500 and 78% of Nifty50 companies QoQ, the report said.

“Over the last five years, the incremental dominance of domestic capital savings has gone up with consistent and rising SIP investments along with a shift toward financial savings. Consequently, the FII-DII ownership ratio in the Nifty 500 is at a new low and has declined to 1.4x from 2.2x in the last five years,” the report said.