What FIIs bought and sold in India in July 2023?

5 Aug 2023 , 10:54 AM

After the FPIs infused more than $11 billion into Indian equities in the months of May and June 2023, the month of July again saw equity inflows of $5.68 billion. July began on an extremely strong note with $3.70 billion infused in the first half itself. However, with the global uncertainty over rate action and hawkishness, the FPIs were a little more circumspect in the second half of the month. FPI flows in the first half of July were nearly double the flows in the second half of the month. At a macro level, it does look like the FPIs are back with a bang in the Indian markets. But, what triggered such massive flows into Indian equity markets from the FPIs? 

Q1FY24 results have been much more impressive than expected. Investors were expecting subdued growth in the June 2023 quarter, but the profit growth in the quarter has been much more impressive than the sales growth. More importantly, rural sales in sectors like tractors, FMCG and two-wheelers showed a clear sign of revival. Secondly, the latest core sector data has been very impressive at 8.2%, clearly pointing to a sharp revival in infra sectors, albeit outside of the hydrocarbon related space. The robust growth in steel, cement and coal are indicative of strong multiplier effects in the economy. It also looks like the current account deficit for FY24 may be relatively under control. Last, but not the least, there is a growing conviction that the Fed may be done with its rate hikes for now, although we will only get confirmation of the same in its forthcoming September policy. The PCE inflation number has also come in at 3% in the US, which gives Fed the leeway to hold on at the current levels for a much longer period..

Sector-wise assets under custody (AUC) story as of July 2023?

Assets under custody (AUC) is the closing market value of all the equities held by FPIs. The AUC gets impacted by the flows and also by the change in value of the holdings due to rise or fall in the market. Between the close of June 2023 and July 2023, the AUC has risen 3.35% while the AUC is up 9.68% in the last 2 months and 13.7% since the start of May 2023. For July ,the FPI flows have been robust, even as the index rallied rapidly but faced resistance at the 20,000 levels of the Nifty. While it has been a sort of double blessing for FPI AUC in the month of July 2023, it is clearly the flows that have been a lot more dominant as a theme compared to the appreciation in the price. However, at $647 billion, the FPI AUC is getting tantalizingly close to the previous peak of $667 billion touched in October 2021. It may be recollected that; from that point, the FPI AUC fell to a low of $523 billion in June 2022. So, the bounce from lower levels has surely been appreciable. It is now just $20 billion shy of the previous peak. Check it below.

Industry  Group	FPI AUC (Jul 2023) ($ billion)	FPI AUC (Jun 2023) ($ billion)
Financials (BFSI)	215.33	211.35
Information Technology (IT) Services	60.55	59.59
Oil & Gas	60.33	59.35
Fast Moving Consumer Goods (FMCG)	47.07	46.30
Automobiles and Auto Components	42.03	40.52
Healthcare and Pharmaceuticals	35.22	32.97
Capital Goods	24.74	22.08
Consumer Durables	22.25	21.82
Power (generation and transmission)	21.96	19.79
Metals and Mining	20.50	19.04
Telecommunications	17.03	16.28
Consumer Services	16.40	15.97
Construction	13.12	11.80
Chemicals	11.72	12.32
Services	11.50	11.06
Cement	11.44	11.23
Top 16 Sectors	631.16	611.47
Other 7 sectors	16.18	14.86
Total FPI AUC	647.34	626.33

Data Source: NSDL

The table above captures the top 16 sectors with AUC above $10 billion as of the close of July 2023. NSDL has pruned the list from 40 sectors to 23 sectors. Out of these 23 sectors that FPIs invested in, AUC of the top-16 sectors accounted for 97.50% of total FPI AUC of $647.34 billion. While the FPI flows did slow in the second of half of July, it remains to be seen if the momentum can be maintained in August 2023 also. For a change, FPIs were not net sellers in IT sector and were either neutral or positive on all sectors except chemicals.

The BFSI space, comprising of banks, NBFCs and insurance accounted for 33.26% of overall FPI AUC. In absolute terms, there has been accretion in AUC across sectors with most of the AUC accretion coming from sectors like BFSI, automobiles, healthcare, and capital goods. These appear to be the preferred bets for the FPIs. BFSI sector managed to improve its overall AUC decisively to the $215 billion mark while robust AUC growth in sectors like capital goods, cement, and construction hints that the FPIs are betting strongly on the revival of the capital investment cycle in India.

 

FPIs buy BFSI, Capital Goods, oil in July 2023, but sell chemicals

Here is a sectoral break-up of the FPI flows into Indian equities in the month of July 2023

Where FPI money flowed in	Where FPI money flowed out
Sector	Amount ($ million)	Sector	Amount ($ million)
Financials (BFSI)	+1,401	Chemicals	-120
Capital Goods	+685	Forest Materials	-16
Oil & Gas	+528	Textiles	-11
FMCG	+490	Diversified	-5
Telecommunications	+399	Utilities	-1
Auto	+394
Power	+369
Consumer Durables	+293

Data Source: NSDL

Let us first focus on sectors getting positive flows from FPIs in July 2023. Once again, it was Financial Services, comprising of banks, NBFCs and insurance, that led the way with $1,401 million of inflows. The FPIs have infused nearly $6 billion into Indian BFSI stocks in the last 3 months out of the nearly $17 billion infused into Indian equities overall. This was followed by capital goods inflows at $685 million. FPIs have been strongly betting on frontline capital goods stocks on the back of revival in capital investment cycle as well as on defence orders as part of government in-sourcing plans. Other sectors to see strong inflows were Oil & Gas at $528 million, FMCG at $490 million, Telecom at $399 million and Autos at $394 million. 

The only sector that saw meaningful FPI selling of nearly $120 million was the chemicals sector, where supply chain issues have been rampant of late. However, in a month when FPI net inflows were to the tune of $5.68 billion, even IT saw net buying by the FPIs to the tune of nearly $191 million, probably due to relatively attractive valuations. Overall, the FPI bet is on the India centric story, while they have been cautious about global dependencies.

What triggered the FPI flows into sectors in July 2023

If May and June were bets on steady macros and lower CAD, the focus was a lot more micro or sector specific in July 2023. Of course, the macro advantages do continue. There are a few themes that clearly emerge.

• The preference has been for domestically oriented sectors like BFSI, Capital Goods and FMCG; that are relatively immune to global uncertainties. It is a bet on growing Indian purchasing power and a sustained business friendly environment. 

   

• At a specific level, BFSI continues to be the preferred space, which can be more due to the weight it carries in the Indian market context. But the big story in July was capital goods, where the FPIs are expecting a sharp revival in the capital investment cycle.

   

• Passive flows were also robust in the month of July; as in June and May. That is evident from the extent of buying visible in the heavyweight sectors. Passive flows typically come from India index funds and India ETFs.

   

• If one looks at the 3 sensitive sectors viz. capital goods, construction and Power, these sectors saw overall inflows of $1.32 billion on a net basis; almost the same as the previous month. Clearly, the broader theme appears to be an India specific bet.

A glance at overall FPI flows break-up in July 2023

Here is how the FPI flows in July 2023 and on a cumulative basis looked like.

Calendar  Month	FPI Flows Secondary	FPI Flows Primary	FPI Flows Equity	FPI Flows Debt/Hybrid	Overall FPI Flows
Calendar 2022	(146,048.38)	24,608.94	(121,439.44)	(11,375.78)	(132,815.22)
Jan-2023	(29,043.32)	191.30	(28,852.02)	2,308.27	(26,543.75)
Feb-2023	(5,583.16)	288.85	(5,294.31)	1,155.19	(4,139.12)
Mar-2023	7,109.65	825.98	7,935.63	-2,036.42	5,899.21
Apr-2023	9,792.47	1,838.35	11,630.82	1,913.97	13,544.79
May-2023	38,093.11	5,745.00	43,838.11	4,491.44	48,329.55
Jun-2023	45,736.71	1,411.63	47,148.34	9,109.36	56,257.70
Jul-2023	37,292.82	9,324.94	46,617.76	1,359.32	47,977.08
Aug-2023 #	-2,218.50	184.77	-2,033.73	1,624.69	-409.04
Total for 2023	1,01,179.78	19,810.82	1,20,990.60	19,925.82	1,40,916.42
# – August Data is up to 04th August

Data Source: NSDL (all figures are Rupees in crore). Negative figures in brackets

The above table best sums up the story of FPI flows in July 2023 in particular and for calendar year 2023 in general. In the first 7 months of calendar 2023, FPIs have infused Rs120,991 crore into Indian equities while their total infusion into equity and debt combined was Rs140,916 crore. What is more interesting is that, this is after offsetting the heavy selling by FPIs in January and February 2023. Clearly, year 2023 promises to recoup most of the FPI outflows between October 2021 and Jun 2022, but we have to wait and watch.