After pulling out almost $ 6.4 billion during the March 2020 quarter, foreign institutional investors, or FIIs, made a comeback into the Indian equity markets during the quarter ended June and September 2020. Although FIIs were net sellers in September 2020, but for the quarter ended September 2020, there were net buyers to the tune of $ 6.3 billion, which was significantly higher than the net inflow of $ 3.9 billion in the previous quarter.
The month of August was one of the best with respect to foreign flows with FIIs pumping in net assets worth $ 6.2 billion, which is the highest monthly net inflow after October 2010, when they invested net assets worth $ 6.4 billion in Indian equities.
The scenario, however, reversed in September as FIIs turned net sellers in Indian equities to $ 1.1 billion. The outflow was triggered largely on concerns over the country’s economic growth and rising border tensions between India and China. The impact of the nationwide lockdown was evident in India’s gross domestic product, which contracted by a huge 23% for the end of the quarter in June 2020, therefore denting sentiments. Foreign investors also stayed on the sidelines as COVID-19 cases in Europe and other countries renewed fears of a possibility of new lockdowns, thus dashing hopes of swift economic recovery.
However, the opening of domestic economy, resumption of business activities, better-than-expected quarterly results and a fall in the case counts in India, strongly brought back foreign investors into Indian equities in October and November. From October till November 11, 2020, FIIs have invested net assets of around $ 3.88 billion.
As of the quarter ended September 2020, the value of FII investments in Indian equities stood at $ 450 billion, which is considerably higher than the $ 344 billion recorded in the previous quarter, a spike of almost 31%. As of September 2019, the value of FII investments in Indian equities was $ 429 billion.
FIIs’ contribution to Indian equity market capitalisation also shot up during the quarter to 21.4% from 18.7% for the June quarter. Interestingly, this is the highest recorded level of FII contribution in the Indian equity markets, with the previous highest being 20.5% in March 2015. As of September 2019, their contribution to the Indian equity market capitalisation was 19.3%.
Excerpts from Morningstar Offshore Fund Spy Report for September quarter 2020. Download the report here.
