Foreign investors are back: Capital flows turn positive for the first time in 10 months

• FIIs investments turned positive to $130 million for the first time since September 2021.
• However, India continues to be the second biggest country in terms of outflow trends.
• India has witnessed an outflow of $29 billion since the start of this year.
• For the first time this year, the momentum of flow from domestic investors has decreased.

Foreign institutional investors (FII) have been pulling out of the Indian market for quite some time now and July saw a reverse in that trend for the first time in 10 months, a recent report by Bank of America (BofA) Securities has revealed.

FII inflows turned positive to $130 million for the first time since September 2021. “With inflows picking up this month, this could indicate bottoming out,” the investment bank said. However, this wasn’t enough to bring a positive spin on the amount that the foreign investors have already pulled out from the Indian market.

India has witnessed an outflow of $29 billion since the start of this year and it stands second in the outflow trend, right after Taiwan. The inflow uptick could, however, lead to a jump in ownership level to some extent. FII ownership levels stood even below Covid-19 lows at 19.0%, as of June 2022, according to data reported by NSE500 companies.

Even as the inflow from FIIs picked up, the flow from Domestic Institutional Investors (DII) did slow down $3.4 billion. Both passive and active funds saw moderation at $1.6 billion and $1.8 billion, respectively. Its total inflow stood at $26 billion from January to June this year.

“Within DIIs, arbitrage funds saw outflows (-$$354mn vs $ 65mn in May'22), while inflows were seen in others type funds on MoM basis,” BofA added.

Overall, the asset under management (AUM) of foreign investors stood at $523 billion and domestic investors stood at $256 billion. The total IPO fund raising stood at $5.34 billion this year to date, which is low due to the high market volatility in last quarter and macro headwinds. “Despite this, IPO pipeline for CY22 stood strong at $7.7billion,” the investment bank said.

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