Macro reasons why FPIs remain interested in India
If we leave out the 1990s, when FPI activity was limited, FPIs infused $206 billion as net inflows into Indian equities since 2000. Of these 21 years, FPIs were net sellers in 3 years and net buyers in the remaining 18 years. FPIs have infused more than $20 billion per year on 4 occasions. However, FY21 took the honours with total FPI inflows of $37 billion.
But there is a bigger story here. FPIs have infused $206 billion into India since year 2000. However, even after you consider all the monies repatriated over last 25 years, the value of FPI investments stands at $596 billion. This makes them the most influential investor class in India after promoters. That explains why FPIs still find the India story eminently attractive.
Sectoral buying and selling by FPIs in May 2021?
The chart above captures the sectors that FPIs bought into and sold out in the month of May 2021. At an overall level, FPIs withdrew $397 million from Indian equities in May, but that does not capture the intensity of the turnaround in the second half of the month. While FPIs were negative on rate sensitives in April, the situation reversed in May.
With confidence returning to Indian markets, FPIs infused $746 million into banks, $153 million in metals, $129 million in capital goods, $124 million in utilities, $100 million in automobiles and $94 million in consumer goods. The surge in buying in banking stocks indicates that the rapid recovery from COVID-2.0 has put growth and NPA concerns on the back-burner. Also, the surge in interest in capital goods shows that FPIs are willing to bet on a capital cycle recovery. FPIs continued to have a preference for India consumption themes.
Let us now turn to the sectoral selling by the FPIs. The biggest selling was seen in IT services with $415 million being withdrawn. Concerns over valuation, dollar strength and the proposed G-7 corporate tax has kept IT sector on tenterhooks. Insurance was the theme that saw selling of $372 million in May-21 after a very sharp rally in recent months. During the month, FPIs also pulled out $239 million from telecom stocks and $220 million from oil & gas stocks. However, the fortnightly analysis shows that in most cases, the selling became less pronounced in the second half of May. Additionally, pharma, media and retailing were three other sectors that came in for some heavy selling by FPIs in May-21.
Did the FPI assets under custody change sector-wise?
The overall assets under custody (AUC) of FPIs as of end May 2021 stood at $596 billion. That is $49 billion higher than the $547 billion AUC level at the end of Apr-21. The chart below captures 10 of the heaviest sectors in terms of assets under custody or AUC of FPIs in India. We have taken a cut-off figure of $10 billion AUC. NSDL data provides FPI AUC across 35 sector classifications. However, the chart captures 14 sectors with AUC of more than $10 billion.
These 14 sectors with combined AUC of $545 billion account for 91.5% of the total FPI AUC in India as of end May 2021. If you just consider the 10 largest sectors, the AUC stands at $497 billion or 83.4% of the total AUC; slightly more than the previous month. Also, there is a clear dominance shown by the BFSI space with banks, NBFCs and insurance having total AUC of $210 billion or 35.23% of the total FPI assets under custody as of May-21.
What are some of the other trends in FPI AUC? Pharma combined with healthcare is emerging rapidly as a key sector of FPI interest and is now more than automobiles. Clearly, the re-rating of pharma sector post COVID appears to have made a difference. Insurance saw FPI selling in the month of May 2021. However, insurance still remains an important sector for FPIs and this could go up substantially once LIC also lists towards the end of FY22. FPIs have also shown a lot of fresh interest in sectors like chemicals, cement and utilities where value plays have been quite evident.
We could see interesting shifts in this mix once Paytm lists in 2021 but the moral of the story is that FPIs have only increased their heft in a month when the Indian market capitalization finally crossed the $3 trillion Rubicon.