Risk-off sentiment brings big selloff in FPI-heavy counters

Mumbai: Shares of many companies with higher foreign ownerships have been under pressure amid the heightened selling of Indian stocks by overseas investors so far in May.

Foreign portfolio investors (FPIs) have sold shares worth over ₹22,000 crore this month after pulling ₹21,524 crore out of Dalal Street in April. More than 100 stocks where FPIs hold over 5% stake as of March 31, 2024, have declined between 10% and 30% in last one month, compared to a 1.7% fall in benchmark Nifty.

"In the present circumstances, FPIs are adopting a risk-off strategy, foreseeing significant volatility leading up to the general election," said G Chokkalingam, founder of Equinomics Research. "Investors should consider keeping FPI-heavy stocks limited in their portfolios until the elections are over."

FPI-heavy stocks like Aster DM Health, Sonata Software, Paisalo Digital, Gujarat State Petronet, Coforge, and Birlasoft have dropped between 20% and 30% in the past month. While selling by foreign investors could have contributed to the drop, analysts said weaker-than-expected results in some of them resulted in broad-based selling across investor categories.

Several large-cap stocks with higher-than-average FPI holdings, including Larsen & Toubro, HCL Technologies, Kotak Mahindra Bank, Titan, and DLF, among others, have declined more than 10%. HDFC Bank, Infosys, and Bajaj Finance have fallen over 5% in just one month.

"FPI-heavy larger stocks have not given any returns to investors in the last two to three years," said Joseph Thomas, head of research at Emkay Wealth Management. "Since no significant movements have taken place in these stocks, it may be advisable to stay invested; or for better price performance, mid-caps could be considered."

Foreign investors are selling Indian stocks in the run-up to the general election, a deviation from the trends on the previous two occasions. In 2019, FPIs purchased shares worth nearly ₹25,000 crore in the two months leading up to the election results. In 2014, they acquired shares worth ₹36,500 crore in the two months preceding the elections.

Some FPIs are pulling money out of Indian stocks and reallocating to China and Hong Kong, which are trading at cheaper valuations compared to most global markets.

"Aggressive selling by FPIs has been triggered by the outperformance of China and Hong Hong during the last one month and the underperformance of India," said VK Vijayakumar, chief investment strategist at Geojit Financial Services.

Hong Kong's benchmark Hang Seng Index has surged by over 16% in one month and 18% in two months. China's Shanghai Composite has gained 4% and 15% in the last one month and two months, respectively.