The Indian stock market has witnessed a rapid transformation in the ownership patterns of Indian companies. This trend, marked by a decline in Foreign Portfolio Investor (FPI) ownership and a rise in Domestic Institutional Investor (DII) and retail participation, is reshaping the way Indian equities work.
Decline of FPI Ownership in Indian Companies
FPI ownership in Indian-listed companies has been on a steady decline, falling to its lowest level in over a decade. As of June 2024, FPI ownership in the Nifty 500 companies dropped to 18.8%, down 30 basis points (bps) from the previous quarter. This decline continues a trend that started in 2021, with FPI-free float ownership falling from a peak of 48% to its current level of 39%.
This trend is more evident in the Nifty-50 basket, where FPI ownership witnessed a quarter-on-quarter decline of 40 bps to settle at 24.5% in the Jun’24 quarter. Conversely, midcaps and smallcaps have shown resilience, with midcap FPI ownership increasing by 22 bps to 16%, and smallcaps by 15 bps to 12.4%.
The continued decline of FPI participation is partly attributed to several global and domestic factors, including monetary tightening by the US Federal Reserve, geopolitical tensions, and concerns over the economic slowdown in China and Europe. Despite strong inflows totaling $25.3 billion over the past year, FPIs have remained net sellers in recent months, particularly in sectors like financial services, metals, and automobiles.
Rise of Domestic Institutional Investors (DIIs) and Retail Participation
In contrast to the declining FPI presence, domestic institutional investors (DIIs) and retail investors have increasingly taken center stage in Indian markets. As of June 2024, DII ownership in the Nifty 500 companies reached an all-time high of 16.9%, with DIIs controlling 35% of the free float in Indian-listed companies. Individual investors have also seen their share rise, holding nearly 18% of the market float.
The surge in domestic participation has been largely driven by mutual fund inflows, new fund offerings (NFOs), and systematic investment plans (SIPs). Mutual funds have continued to channel significant capital into Indian equities, with SIP contributions and direct investments in the June quarter totaling Rs. 1.09 lakh crore.
Sector Rotation
Both FPIs and DIIs have shown consistent interest in certain sectors while reducing their stakes in others. For instance, sectors like consumer services, capital goods, real estate, and power have seen increased FPI and DII participation for the past four consecutive quarters. Autos and telecoms followed a similar trend, though with minor reductions in stake.
In contrast, the FMCG and financial sectors have seen consistent reductions in FPI and DII stakes over the past few quarters. Notably, FPIs have shown a renewed interest in the chemical sector, reversing three quarters of selling with a minor increase in the June 2024 quarter. Meanwhile, the healthcare sector has experienced a slight decline in both FPI and DII ownership after three-quarters of growth.
DIIs hold ground
The increasing prominence of domestic investors has acted as a stabilizing force in the Indian markets, particularly during periods of global volatility. Since 2019, domestic holdings—including both DIIs and individual investors—have consistently exceeded those of FPIs. This shift has provided Indian markets with a buffer against global shocks, such as the unwinding of the Yen carry trade and concerns over global economic growth.
During the first half of August 2024, FPIs sold Indian equities worth ₹18,824 crore, particularly in financial services, metals, and construction materials. This came after a strong buying spree in July, where FPIs injected $3.87 billion into Indian equities. Despite these fluctuations, domestic investors have remained steadfast, continuing to pour capital into the markets and mitigating the impact of FPI outflows.
Way ahead for FPI and Domestic Participation
The long-term outlook for FPI participation in India remains mixed. While FPIs are likely to continue investing in Indian markets due to the country’s strong economic fundamentals, including GDP growth, reduced fiscal deficit, and robust corporate profits, the volatility in global markets and high valuations may keep FPI flows unpredictable in the short term.
On the other hand, domestic participation is expected to remain strong, driven by sustained mutual fund inflows, retail investments, and growing awareness of equity markets as a lucrative investment avenue. This shift could further reduce India’s dependence on foreign capital and create a more resilient stock market capable of weathering global financial storms.
In conclusion, while FPIs remain important players in Indian equity markets, their declining ownership signals a transformative shift towards greater domestic control. This evolution reflects a maturing market that is increasingly self-reliant, providing Indian investors with a more prominent role in shaping the future of the country’s financial landscape.
Market this week
| 19th August 2024 (Open) | 23rd August 2024 (Close) | %Change | |
| Nifty 50 | ₹ 24,636 | ₹ 24,823 | 0.8% |
| Sensex | ₹ 80,680 | ₹ 81,086 | 0.5% |
The Indian benchmark indices experienced a mixed performance this week, influenced by a muted global market trend.
- All eyes were on the Jackson Hole conference today (August 23), where the Federal Reserve’s hints about potential interest rate cuts for September are eagerly awaited.
- A decline in crude oil prices, driven by softened demand, could further impact market sentiment.
- Sectoral rotation and stock-specific action are expected to dominate market movements.
- Upcoming GDP growth data from the US and India are likely to influence the Reserve Bank of India’s decision on interest rates.
Weekly Leaderboard
| NSE Top Gainers | NSE Top Losers | ||||
| Stock | Change (%) | Stock | Change (%) | ||
| Hindalco Industries | ▲ | 8.0 % | ONGC | ▼ | (3.2) % |
| SBI Life | ▲ | 5.9 % | M&M | ▼ | (2.9) % |
| Bharat Petroleum | ▲ | 5.9 % | TATA Motors | ▼ | (1.2) % |
| Bajaj Finserv | ▲ | 5.8 % | Adani Enterprises | ▼ | (1.0) % |
| HDFC Life | ▲ | 5.7 % | WIPRO | ▼ | (0.8) % |
Stocks that made the news this week:
- Reliance Power, Reliance Home Finance, and Reliance Infrastructure fell on August 23 after market regulator SEBI banned promoter Anil Ambani from the securities market for five years. The ban, which also affects 24 other entities, including former key officials of Reliance Home Finance, was imposed for allegedly diverting company funds.
- Central Depository Services (India) Ltd (CDSL) shares surged nearly 8% on the ex-date for its bonus issue, as today marks the last opportunity for shareholders to be eligible ahead of the August 24 record date. The stock reached an intraday high of Rs 1,558.85 on the NSE, with over 48 lakh shares traded, amounting to a value of Rs 732.68 crore. CDSL has announced a 1:1 bonus share issue, where shareholders will receive one new fully paid-up equity share of Rs 10 for each existing share held as of the record date.
- Delhivery’s share price rose over 2% after HSBC analysts projected a 20% upside potential, citing the company’s dominant position and strong economics in the rapidly growing e-commerce logistics industry. The report highlighted Delhivery’s diversified business across logistics services and customers as a key strength.
