If the market crash has taken a toll on your portfolio, here’s some cold comfort. Foreign institutional investors (FIIs) have suffered much more.
If your portfolio mimicked the Sensex, you would have made a loss of five per cent so far this year. But FIIs lost almost four times as much. The S&P Dollex 30 — the dollar-denominated version of the Sensex — has fallen 19 per cent in 2013 following the rupee’s depreciation.
Blame it on the rupee
The recent fall of the rupee has also sharply reduced the three- and five-year returns for foreign investors. The Dollex 30’s return is now a paltry seven per cent (annualised) for the five years — from 2008 to now. The Sensex, despite the recent correction, has managed 13 per cent.
This is even as FII holdings in the Indian stock market are at a record high. Based on the end-June 2013 shareholding patterns, FIIs collectively held 19.9 per cent (by value) of all outstanding stocks in Indian markets. Three years ago, the holding was just 14 per cent.
This data show why FIIs will be hurt the most if they decide to withdraw substantial sums from Indian stocks now. When FIIs sell, stock prices fall disproportionately due to the low-absorbing capacity of the other market participants. The currency, too, weakens further, compounding their losses.
The recent crash in the rupee has been triggered more by FIIs selling Indian bonds than by their withdrawing from equities. Since June, FIIs have pulled out $8.7 billion from the debt market, but only $3 billion from the equity segment.
FIIs have fared badly in recent times, but have they made money from Indian markets since their entry in 1992? FIIs tend to churn their portfolio actively. And the identity of FIIs that invest in Indian markets too keeps changing.
Cost vs. Returns
But data from the Securities and Exchange Board of India show that the cumulative value of all the money brought in by FIIs, since India opened up to them in 1992, stands at Rs 6,37,922 crore. This captures their value at their approximate costs when they made the investments.
The value of this portfolio at the current market price is Rs 10,85,125 crore. That is a 70 per cent mark-to-market gain, which doesn’t look so bad.
But with almost 60 per cent of this money having flowed in since 2008 and the rupee averaging 49 to a dollar during that period, many FIIs are likely to be sitting on losses on their portfolios today.