The analysis is based on the quarter-end market capitalisation of BSE 500 companies and the corresponding value of FIIs' stake in the respective index companies. The FII stake is based on the end-quarter shareholding pattern of companies as reported by Capitaline. FIIs include all non-promoter foreign investors.
Their stake in Indian companies peaked during the March 2015 quarter, when they owned 26 per cent of India's top 500 listed companies, on average. Foreign investors have been booking profits since then but their selling has not been a one-way street.
Experts say this exacerbated the volatility in India's equity market. "On a typical day, FIIs account for nearly 70 per cent of all trades in terms of value. Their investment decision has a disproportionate impact on the market movement," says Dhananjay Sinha, head of institutional equity at Emkay Global Financial Services.
He attributes this to the lack of conviction among large institutional investors, given the various uncertainties in the global and Indian economies. "FIIs show a lack of conviction about the Indian growth trajectory since March last year. As a result, most of them are now making short-term tactical calls rather than long-term strategic calls on particular stocks or sectors," he adds.
This shows in the FII inflows data published by Securities and Exchange Board of India (Sebi) every month. Foreign investors were a consistent buyer from June-September 2012 till end-March 2015. During the period, FIIs cumulatively pumped nearly Rs 3.3 lakh crore in Indian markets, becoming the single largest group of non-promoter shareholders and the biggest market movers on Dalal Street. Their average stake in BSE 500 companies increased from around 20 per cent at the end of December 2011 to 26 per cent by the end of March last year (see chart).
Foreign investors turned cautious during the April-June quarter last year and have been booking profits since. Others say this has caused large swings in individual stock prices, in either direction. "In the past, there was a belief that large-cap stocks tend to be both liquid and stable. Now, we see even large-cap index stocks such as L&T, Maruti Suzuki and Dr Reddy's Labs correcting by 35-40 per cent in a matter of weeks," says G Chokkalingam, head of Equinomics Research & Advisory.
The volatility has made life tougher for investors who prefer to buy and then sit on their investment for months or even years. "If a stocks moves in a large range, it makes its tough for value investors like us to find the right entry point," adds Chokkalingam. His firm invests in equities on behalf of high net worth individuals.