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FII outflows worse than October 2008? Not really!
Jason Monteiro 03 September 2015
Though the sell-off by foreign investors in August 2015 is significant, it is not as high as it is made out to be for two simple reasons
 
In August 2015, foreign institutional investors (FIIs) sold Rs17,248 crore worth of Indian equities. This was the highest since January 2008 when FIIs sold as much as Rs17,326 crore. In October 2008, at the height of global financial crisis, they recorded an outflow of Rs14,248 crore, the third-highest in the last seven years. Clearly, the net selling that took place in August 2015 seems huge. However, there is a problem in drawing alarmist conclusions. While in absolute terms the outflow may look massive, in reality, an outflow of Rs17,000 crore today is not the same as an outflow of Rs17,000 crore seven years back. The value of money depreciates and the market level changes. If the time value of money is considered, the latest outflow would be much lower. So where are we placed currently compared to the historic outflows of the past? We use two methods. In the first, we adjust the inflows and outflows of the previous months with inflation and in the second method, we calculate the percentage of the monthly FII flows to the total market capitalisation of the BSE. 
 
In the first method, the net inflows and outflows of FIIs in the past years are adjusted to today’s prices, assuming an inflation rate of 7%. We had used this data for an earlier article on whether you should buy, when FIIs are selling. (Read: FIIs are selling aggressively. Should you buy?)
 
We reckon that post such adjustment, the January 2008 outflow would be roughly Rs28,942 crore and the October 2008 outflow would be Rs22,624 crore. On an adjusted basis, the FIIs outflow in August 2015 is still the third highest outflow in the past 15 years but far lower than the big outflows on the two earlier occasions. Take a look (below) at the top 10 months which have the highest FII outflows on an inflation adjusted basis.
 
 
While FII outflows in August 2015 were high, it is still a long way off from the peak. In August 2015, the outflow is nearly 50% lower than the FII outflows seen at the peak in January 2008. Even compared to the outflows in October 2008, the recent outflows in nearly 30% lower.
 
On analysing the FII flows as a percentage of the total BSE market capitalisation, we find that this is the eighth highest FII outflow using this metric. The highest percentage outflows to the total BSE market cap was in October 2008. In the month, FIIs sold as much as Rs14,249 crore and the total BSE market-cap was Rs29.97 lakh crore. In May 2004, the ratio works out to -0.32%, as FIIs sold Rs3,251 crore when the total BSE market-cap was around Rs10.23 lakh crore. The FII outflow in January 2008, which was the highest in absolute terms, ranks third. The FII outflow of Rs17,326 crore in January 2008 was at a time when the total BSE market-cap was around Rs57.96 lakh crore.
 
As on 31 August 2015, the total BSE market-cap was as high as Rs98.28 lakh crore. The outflow of Rs17,248 crore as a percentage of the market-cap works out to just 0.18%. This brings it to a level that is almost on terms with the FII outflow of Rs3,806 crore seen in October 2005, when the BSE market-cap was Rs20.66 lakh crore.
 
Take a look at the highest FII outflows in percentage terms to the total BSE market capitalisation-
 
 
Therefore, the FII outflow in August 2015, though large, is not among the most significant.
 
Comments
Avinash Gupta
9 years ago
Stats can always be twisted to prove a point. Point is not whether they are the highest ( adjusted ) but they are very large. And there appears to be reasonable chance that they may continue. What is going to hurt the small investors as always is the fact that they probably entered the market at the peak and are now down 25-30% in most of the shares. Indices do not give the correct picture. Economy not moving forward could lead to further problems. There was one silver lining through which economy could benefit - low crude prices but that has also been darkened earlier by increases in taxes and now by a failed monsoon. Indian investors are in for tough time and shall be really beware of shenigans of overhyped ace stock pickers.
Reply
Vinayak Bhimrao Mudholkar
Replied to Avinash Gupta comment 9 years ago
Sir, I don't think he is twisting the statistics. If small investors plunge into stockmarkets without proper study; who should they blame to?....Savy investors have been investing in smallcaps & even after this correction they are enjoying decent profits....when economy recovers it is this segment that benefits disproportionately....Choice is yours....The glass is half full....Don't look at just Sensex or Nifty !
Reply
Vinayak Bhimrao Mudholkar
Replied to Avinash Gupta comment 9 years ago
Sir, I don't think he is twisting the statistics. If small investors plunge into stockmarkets without proper study; who should they blame to?....Savy investors have been investing in smallcaps & even after this correction they are enjoying decent profits....when economy recovers it is this segment that benefits disproportionately....Choice is yours....The glass is half full....Don't look at just Sensex or Nifty !
Reply
R S Murthy
Replied to Vinayak Bhimrao Mudholkar comment 9 years ago
90% of the trade is in derivatives. So long as the derivative trade exists small investor will continue to suffer. Only delivery based trade is a solution for all these evils.
Reply
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