In the previous few months, the markets have witnessed a massive outflow of funds by the foreign institutional investors (FIIs). Foreign investors have been offloading their Indian equity investments massively; however, with a closer look, you can find that FIIs have been mainly offloading the bluechip companies or the large-cap companies, while the foreign investments shifted to the public sector undertakings (PSUs) and small-cap companies. So, while we were all worrying about foreign investments flying away from India, but has been a strategic move by them.
Foreign Investments Shift in Q4FY25
In the March quarter, the total amount of stocks offloaded by FIIs was ₹1.16 lakh crore. In the fourth quarter of FY25, FIIs holding increased by 52% of companies out of the 79 PSUs listed, which have disclosed their shareholding data until now. Moreover, from the Nifty Microcap 250 Index, FIIs increased their holdings in 51% of the 186 companies which has reported the shareholding pattern till now.
Coming to the broad market foreign investments, from the 107 BSE Midcap Stocks which have reported the shareholding, FIIs have purchased stakes in 43% of these stocks. Similarly, FIIs increased their shareholding in 42% of the 730 stocks of the BSE Smallcap index, which has reported the shareholding data for Q4.
If you are wondering why FIIs have been buying the PSUs while selling the large-cap and blue-chip stocks, the answer is fair valuation. Due to the market corrections that happened in the previous months, the valuation of these PSUs offers ample opportunities for investors. Many PSU companies’ stocks are even at 50% lower than their 52-week high. Also, if you look at the past market corrections, FIIs have always increased their exposure when the market fell.
Focus on Mid and Smallcap
The midcap and smallcap companies in the Indian market derive most of their revenue from the domestic markets. This is one of the biggest reasons why, even when the entire stock market across the world is highly volatile, these stocks have the potential to generate magnificent returns in the domestic markets. This is why these stocks are in the eyes of the FIIS as well.
Amongst Nifty 50’s constituents, FIIs are increasing stakes in just five companies while reducing in the others. From the Nifty 100, 73 companies reported shareholding data, and out of them, FIIs decreased stakes in 73% of the companies.
Why are FIIs dumping large-cap stocks?
Now, as you know why FIIs are buying the smallcap and PSUs by selling largecap stocks, let’s see why they are dumping the largecap stocks.
So, due to the global uncertainties, the large-cap companies’ revenues are under scrutiny, and their profit margins have dropped. This is due to the link between global consumer, or global demand, being low which is mostly catered by the large-cap and bluechip. Furthermore, the ongoing trade war with the US has been making foreign investors worried enough to withdraw from the markets especially from the largecaps.
Due to the selling across largecaps, the Nifty 50 dipped by around 0.5% during the quarter, while Nifty 100 dipped by 1.8%. However, even with FIIs buying smallcaps and midcaps, the BSE Midcap index and BSE Smallcap index saw a massive dip in values that are 11% and 15%, respectively.
Wrapping up
So, the market dynamics have become interesting where foreign investments are flowing into the small and midcaps and PSUs while they are selling off largecaps. However, this has been in alignment with the domestic market sentiment of the economy, which can open up new opportunities for the retail investors as well.
Source: MoneyControl
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