FII Investing More but Owning Less in India

Even as foreign flows have remained buoyant, foreign ownership has actually dipped…unusual and mathematically challenging, but likely a combination of flow timing (buying at the top, selling low and possibly buying back – it’s called underperformance), capital raising – including large secondary market sales, and insurance company buying…over the year though, within the now fairly stable 16-18% range.

But let there be no two views on this – foreign flows have had a consistently huge impact on the market…the market has tended to match foreign flows, and foreign flows will remain a huge driver of the market. However, over time, the fluctuations in existing portfolio returns with new inflows have been becoming smaller. YTD, it’s only been foreign flows volatile during the last quarter, but fairly decisive and over-riding in July.

The valuation loss shows, FII portfolio value is relatively stable, but is down over the quarter in-spite of net inflows. No material shifts in ownership trends…could change if the government presses ahead with its divestment agenda, or corporates expedite minimum 25% listing timing (currently spread over 3 years), or if flow patterns change meaningfully.

Insurers have built up a structural gap over MFs – but with regulatory challenges on growth up ahead for the insurers (MFs already facing them), will the gap continue to widen? Pretty bullish – the foreigners and insurers on financials, the MFs on industrials.