FPI ownership in NSE-listed companies drops below 18% in FY24

As of March 2024, foreign portfolio investment (FPI) ownership in NSE-listed companies have fallen below 18%, marking a notable shift in investments pattern in the Indian markets. Notably, this has happened for the first time in over 11 years. FPI in India's NSE-listed companies has experienced significant fluctuations over the past two decades, reflecting global economic trends and geopolitical events, according to NSE report.

Between 2002 and 2015, the FPI ownership in the country showed a gradual upward trend, except for a temporary dip during the 2007-08 financial crisis. The subsequent years saw the FPI's share dip marginally, due to global uncertainties such as the US-China trade war and Brexit.

Despite a brief resurgence in 2018-19, FPI ownership plunged yet again in the first half of 2020, due to the onset of the COVID-19 pandemic. However, the situation reversed quickly as global liquidity injections improved risk appetite, leading to a temporary increase in FPI share in late 2020.

But since then, FPI participation has been on a downward trajectory, driven by recurring waves of COVID-19, a slowdown in China, the Russia-Ukraine war, and concerns over global economic stability. These factors, coupled with rapid monetary tightening by central banks, notably the US Federal Reserve, have further dampened foreign investor confidence. Consequently, by the end of FY24, FPI ownership in the NSE-listed space dropped to below 18%, marking its lowest point in over 47 quarters.

However, individual investor participation in the NSE-listed universe has remained relatively stable over the past decade, staying between 8% and 10%. While direct individual ownership has shown resilience, the rise in systematic investment plans (SIPs) also indicates a shift towards indirect ownership.

Despite a minor decline in FY21, the SIP route has become increasingly popular among retail investors, reflecting growing confidence in long-term equity investments. The direct individual ownership trend highlights a maturing market where investors are more inclined towards indirect participation through mutual funds and other investment vehicles.

This shift also underscores the growing sophistication of retail investors who seek diversified exposure to the equity market. The ownership landscape has also changed significantly among promoters over the years. From 2001 to 2009, promoter ownership rose sharply, reaching a 19-year high of 57.6% in March 2009. But this increase was followed by a gradual decline as the Securities and Exchange Board of India (SEBI) mandated a minimum free float requirement of 25% in 2010.

The reduction in promoter ownership was primarily driven by a decline in government stakes, as the government aimed to enhance public participation in Central Public Sector Enterprises (CPSEs) and generate resources for economic development. Meanwhile, private promoter ownership, including both Indian and foreign entities, saw an increase of approximately 11.6% between June 2010 and December 2021.

In recent years, promoter share has shown signs of a slight increase, particularly due to a rise in government holdings, except for a minor dip in FY23. This resurgence in promoter ownership reflects the ongoing adjustments in the market dynamics and regulatory landscape. Domestic mutual funds (DMFs) have also seen a substantial rise in ownership of NSE-listed companies from 2014 to 2019, driven by increasing SIP inflows.

Despite a temporary drop in FY21 due to economic uncertainties and high redemption pressures during the COVID-19 pandemic, mutual fund participation has rebounded strongly in the past few years.