Business

IIE DIGITAL DESK , July 24: Shares of food delivery and quick commerce company Swiggy fell more than 5% on Thursday after investor sentiment was hit by concerns over the company's foreign ownership limit, raising fears of significant passive fund outflows. The sharp decline came after market participants reacted to reports that Swiggy's foreign shareholding has approached the maximum permissible threshold, potentially forcing major global index funds to reduce their exposure to the stock. 

Swiggy's stock declined by more than 5% during Thursday's trading session on the National Stock Exchange (NSE), making it one of the day's worst-performing large-cap stocks. The sell-off was primarily driven by concerns that the company may soon exceed India's foreign ownership ceiling, which could lead to adjustments by global passive investment funds tracking international equity indices. 

Market analysts, if Swiggy reaches the prescribed foreign ownership limit, several index providers may be required to reduce the company's weighting or remove it from certain global indices. Such a move could trigger passive fund outflows estimated at nearly $460 million, as exchange-traded funds (ETFs) and index-tracking mutual funds automatically rebalance their portfolios in accordance with index rules. These concerns prompted heavy selling pressure in the company's shares during the trading session. 

Passive investment funds replicate benchmark indices rather than actively selecting stocks. Whenever a company's weight in an index changes or a stock becomes ineligible because of regulatory restrictions such as foreign ownership limits, these funds are required to buy or sell shares accordingly. Analysts believe this technical factor, rather than any deterioration in Swiggy's business performance, is the primary reason behind the sharp decline in the stock.

The near-term pressure, several market experts continue to maintain a constructive long-term outlook on Swiggy's business. They point to the company's strong position in India's online food delivery market, rapid expansion of its quick commerce platform, and growing digital consumer base as key drivers of future growth. Analysts believe that the current weakness is linked mainly to regulatory and index-related concerns rather than operational challenges.

The foreign ownership issue has become increasingly important for listed Indian companies with substantial overseas investor participation. Once the foreign investment ceiling is reached, additional purchases by foreign portfolio investors become restricted unless the company increases the permissible limit or foreign holdings decline below the threshold. Such restrictions can temporarily affect liquidity and valuation as institutional investors rebalance their portfolios.

Market participants are now closely monitoring Swiggy's regulatory filings and updates regarding its foreign shareholding levels. Investors are also watching for any clarification from the company or changes in index methodologies that could influence the expected passive fund outflows.

Thursday's sharp decline weighed on investor sentiment, analysts note that Swiggy's underlying business fundamentals remain largely unchanged. The company continues to benefit from rising online food delivery demand, increasing adoption of quick commerce services, and India's expanding digital economy. However, in the near term, stock performance is expected to remain sensitive to developments surrounding foreign ownership regulations and potential index-related adjustments.