Market fall rooted in stock-specific negatives, not Sebi FPI disclosure norms

While some selling may have happened from FPIs paring stake to comply with the new regulations, analysts said the big fall over the past few sessions was triggered by stock-specific negative news.

"The FPI selloff quantum in the past few days is significantly lesser than Sebi's estimate of FPI AUM required to make additional disclosures. The counters are also different. The ones beaten down most have low FPI ownership," said Nirav Karkera, head of research, Fisdom.

Sebi initially estimated that the quantum of FPI stake that will have to comply with additional disclosure norms at around Rs 2.46 lakh crore. Sources at Sebi, however, told Moneycontrol that the amount was a conservative estimate. The amount was now significantly lower despite a significant escalation in the market’s overall market-cap, as more FPIs got eliminated on additional exemption criteria.

Deepak Jasani, head of retail research at HDFC Securities, said Sebi norms could be one of the triggers but one must also note that FIIs were selling across emerging markets (EMs).

"The global FII view is to reduce exposure to EM equities, maybe because they feel markets are overvalued. India is also at the receiving end," he said.

During the January 15-23 period, the Nifty lost 4 percent and the Nifty Midcap 100 2.5 percent. FIIs pulled out Rs 32,000 crore and DIIs bought stake worth Rs 17,000 crore.

After a very strong rally and the Nifty scaling 22,000, the markets had moved to an overbought situation and needed an excuse to pullback a bit, Gaurav Dua, SVP - Head Capital Market Strategy at Sharekhan told Moneycontrol.

"The volatility in global markets and the post results correction in some heavyweights in banking sector seem to have provided the required trigger for the correction. The reports related to FPI norms seem to have only added to weakness in sentiments," Dua said.

Much of the market fall has been triggered by negative news about specific stocks. Zee Entertainment Enterprises, for instance, saw a 38 percent drawdown largely on the back of the Sony deal fallout. Data compiled by Prime Database shows only two FPIs holding more than 50 percent of their corpus in Essel group, which amounts to total of Rs 63 crore. Zee's total market cap loss over this period is more than Rs 7,000 crore.

In the case of HDFC, two FPIs have concentrated holdings — Aberdeen and Invesco — amounting to Rs 18,210 crore. Both are exempt from making additional disclosures, as per Sebi. HDFC Bank has fallen close to 15 percent after it announced its third quarter results as the Street was disappointed with its margin performance.

Oberoi Realty, which does not have concentrated FPI holding, has tumbled 10 percent in the past weak after its December quarter net profit tanked close to 49 percent from last year. On the other hand, Adani group companies that have highest amount of concentrated FPI bets have fallen between 2 and 5 percent.

For several stocks, one cannot make a direct connection between concentrated FPI holding and the recent selloff. That said, the numbers could be an under representation of opaque structures as they include only FPIs with greater than 1 percent holding. Data for this study was compiled by Prime database, based on public disclosures.

Sebi wants additional disclosures from FPIs to prevent companies from manipulating the rules on minimum public shareholding and also to prevent overseas entities from indirectly controlling Indian companies through a chain or web of shell firms.

Disclosures on beneficial ownership have to be made by FPIs whose 50 percent of equity assets under management are invested in a single Indian corporate group, or FPIs that have invested over Rs 25,000 crore in the Indian stock market.

Sources on January 24 said there is no immediate deadline or cliff for FPIs to liquidate any holdings.

FPIs which meet the criteria for enhanced disclosures as of October 31, 2023 have time till January-end to rebalance their holdings, if they so wish. "If they continue to meet the criteria for enhanced disclosures as of January end, they shall be required to make the additional disclosures within 30 trading days," sources said.

Even thereafter, if they fail to provide any details, they will have another six months to reduce their holdings.