FIIs still hold $800 bn in Indian equities, continued selling poses risk: Report

FPJ News Service mumbai

Foreign investors hold US$800 billion worth of Indian equities, but their ongoing selling remains a risk for the stock market, a report from BNP Paribas Exane, a European equity research firm said.

“While India's reliance on FII inflows has reduced due to strong domestic investments, foreign investors still hold a significant portion of the market. Their persistent selling could impact market stability. FII holdings in Indian equities have declined to 16 per cent in 2024 from a peak of 20 per cent during the FY14-20 period. 

Domestic mutual funds have increased their investments in Indian equities, reaching a 10-year high. However, their holdings are still lower than those of foreign portfolio investors. This indicates that while domestic investors are playing a bigger role in the market, FIIs remain influential.

One of the key concerns for FIIs is the rising bond yields in the US. Higher yields make US assets more attractive, reducing the appeal of emerging markets like India. Despite this, India has received net FII inflows in seven out of the last ten years--more than any other emerging market.

However, in recent months, Indian equities have faced pressure due to a combination of factors, including China's economic stimulus, increasing US yields, and high valuations in India. These factors have contributed to weaker market performance. Despite FII outflows, the Indian market has not seen a sharp decline because strong domestic institutional investor (DII) inflows have balanced the selling pressure.