FIIs Buy Indian equities worth $3.87 Billion in July 2024

6 Aug 2024 , 09:20 AM

FPIS NET BUY $3.87 BILLION IN JULY 2024

The month of July 2024 looked like a magnified replica of June 2024 almost, but a sharp turnaround from the May 2024 story. In May, FPIs had been net sellers in Indian equities to the tune of $3.06 Billion. However, FPIs infused $3.18 Billion into equities in June 2024 and topped it up with another $3.87 Billion infusion in July 2024. Clearly, the scenario post-polls and the swearing in of the NDA government has led to a turnaround in FPI flows. The month of July started on a strong note. Towards the end of June, current account had turned into a surplus in Q4 with full year current account deficit (CAD) at just 0.7% of GDP. Also, the return of the NDA to power and assurances that coalition government will not derail reforms, led to a surge in FPI inflows into equities since the second week of June 2024. June and July 2024 also saw the VIX normalizing after scaling uncomfortable highs in May 2024.

If you break up the FPI inflows in July 2024, the first half of July saw net inflows of $2,479 Million, while the second half of July saw net inflows of $1,389 Million. It was the budget that dampened FPI sentiments in the last week of July. While the full budget did cut fiscal deficit by another 20 bps to 4.9% of GDP, some of the measures like higher STT on futures & options, higher rates of tax on LTCG and STCG on equities were seen as negative triggers by the FPIs. The worsening geopolitical situation in the Middle East and West Asia also contributed to the tepid FPI buying in the second half of July 2024. The sectoral gross selling in the month of July 2024 was at $(1,811) Million while the sectoral gross buying was at $5,679 Million, resulting in net inflows of $3.87 Billion. Out of these $3.87 Billion of net inflows in July 2024, $3.12 Billion came through secondary markets while $0.75 Billion came via the primary IPO markets. Bulk of the FPI inflows in July 2024 were concentrated in IT, Metals, Automobiles, Healthcare, and Capital Goods.

FACTORS THAT INFLUENCED FPI FLOWS IN JULY 2024

Broadly, there were 4 factors that had an impact on the FPI flows in the month of July 2024.

• In a sense, the dividends of political stability was one of the main factors driving FPI buying in July also. The month of July 2024 saw the government get into business mode with a strong reformist message. FPIs were happy with the fact that the reforms process was still on track and the government would continue to focus on capital spending, big-ticket reforms, and fiscal prudence.
• In the last week of June, the RBI announced the current account deficit number for the fourth quarter and for the full fiscal year FY24. Since it was announced almost towards the end of April, the positive impact was felt in July. For the fourth quarter, India surprisingly reported a current account surplus of 0.6% of GDP. This was driven by better terms of trade in goods and services. For FY24, the current account deficit (CAD) came in at 0.7% of GDP against the expectation of 1% of GDP. This is likely to be positive for the rupee value as also a trigger for the rating agencies to look at India more favourably.
• The geopolitical risk has been escalating in the last few weeks and China has been showing signs of slowing. Both these factors have an impact on FPI sentiments. The situation in the Middle East and West Asia has implications for crude oil prices and India’s CAD. At the same time, China is India’s major trading partner and the robustness of the Chinese economy decides the prices of metals. Above all, FPI sentiments were also hit towards the end of the month by unwinding of the Yen Carry Trade, after Japan went into monetary tightening mode.
• If the FPI sentiments took a hit in the last week of July, it had to do with the Union Budget announced on July 23, 2024. STT on options was hiked 16-fold while the STT on futures was hiked by 70%. In addition, STCG tax on equities was hiked from 15% to 20% while LTCG tax on equities was hiked from 10% to 12.5%. Overall, the budget hinted at taxes eating into a bigger chunk of stock market returns. That soured sentiments of FPIs in the last week of July 2024.

If June started with scepticism and ended with optimism,  the reverse was the case in July 2024. Let us now turn to the sectors that triggered FPI flows in July 2024 and the AUC.

FPI AUC SCALES TO RECORD $891 BILLION IN JULY 2024

Assets under custody (AUC) is the closing market value of equities held by FPIs. It is a function of FPI flows as well as price accretion / depletion. Between May 2024 and July 2024, the FPI AUC has gone from under $800 Billion to $891 Billion. However, if you compare the current AUC with the pervious peak AUC of $667 Billion in October 2021, it is a good 33.58% higher. Here is a quick MOM comparison of FPI AUC

Industry Group	FPI AUC (Jul 2024) ($ Billion)	FPI AUC (Jun 2024) ($ Billion)
Financials (BFSI)	244.78	246.24
Information Technology (IT) Services	82.42	71.65
Oil & Gas	76.00	73.85
Automobiles and Auto Components	72.17	68.44
Fast Moving Consumer Goods (FMCG)	54.45	50.55
Healthcare and Pharmaceuticals	52.14	47.88
Capital Goods	49.75	49.02
Power (generation and transmission)	39.94	38.28
Consumer Services	36.44	33.52
Telecommunications	33.08	31.62
Metals and Mining	26.40	26.34
Consumer Durables	26.10	25.10
Realty	19.59	19.58
Services	19.37	18.55
Construction	18.12	16.96
Cement	16.35	15.88
Chemicals	14.40	13.60
Top 17 Sectors	881.50	847.05
Other 6 sectors	9.22	9.05
Total FPI AUC	890.72	856.10

Data Source: NSDL

The table above captures the top 17 sectors where the FPI AUC is more than $10 Billion as of the close of July 2024. NSDL has pruned the list of sectors to 23. Out of these 23 sectors, the AUC of the top-17 sectors accounted for 98.96% of total FPI AUC of $890.72 Billion. The FPI AUC has scaled a new historic peak in July 2024, and is now headed to $900 Billion.

At $244.78 Billion, BFSI continues to dominate the AUC stakes, despite heavy selling in recent months, and AUM depletion in July. The AUC of financials accounts for 27.48% of the total AUC of FPIs. The other key sectors by AUC were IT, oil & gas, automobiles, FMCG, healthcare, capital goods, and power. In terms of MOM change in AUC in July 2024, positive accretion was seen in IT, oil & gas, automobiles, FMCG, healthcare, consumer services and telecom. On the downside, AUC pressure was seen in BFSI, capital goods, metals, and realty.

JULY FPI BUYING DRIVEN BY IT, METALS, AUTO, HEALTHCARE

In July 2024, FPIs were net buyers of $3.87 Billion in Indian equities. Not surprisingly, there were several sectors that saw strong positive net flows from FPIs in the month.

FPI Net Buying in Sectors	H1-Jul-24 ($ Million)	H2-Jul-24 ($ Million)	July-24 ($ Million)
Information Technology (IT)	331	1,074	1,405
Metals & Mining	236	638	874
Automobiles & Ancillaries	358	377	735
Healthcare	285	319	604
Capital Goods	432	157	589
Consumer Services	196	213	409
Telecommunications	112	263	375
Oil & Gas	233	-39	194
Fast Moving Consumer Goods (FMCG)	217	-100	117

Data Source: NSDL

The top 5 sectors that saw net inflows from FPIs were IT, Metals & Mining, Automobiles, Healthcare, and Capital Goods. The inflows into healthcare and consumer services came largely through IPOs. IT was the classic turnaround story as it emerged as the best defence against the weakening rupee. Automobiles saw inflows on rural recovery, as was also the case with FMCG, albeit to a lesser extent. Capital goods continued to attract FPI interest in the aftermath of the reform orientation of the full budget.

JULY FPI SELLING DOMINATED BY BFSI AND POWER

Here is a sectoral break-up of FPI net outflows from Indian equities in the month of July 2024, with the colour of flows broken up into the first half and second half of the month.

FPI Net Selling in Sectors	H1-Jul-24 ($ Million)	H2-Jul-24 ($ Million)	July-24 ($ Million)
Banking & Financial Services (BFSI)	56	-969	-913
Power	-107	-347	-454
Construction	-108	-75	-183
Services	65	-241	-176
Chemicals	-14	-47	-61

Data Source: NSDL

In a month, when the FPIs were net buyers to the tune of $3.87 Billion, the selling would have been expected to be sober. However, there were pockets of fairly intense selling. Banking & Financial Services (BFSI) stocks saw the maximum selling in the month of July 2024 on valuation concerns as well as fears of the NIMs compressing. Also, the timing of rate cuts by the Fed remained uncertain. Power and Construction were the two sectors that saw the impact of FPI selling due to the lag effect of election relation project delays. That would take some time to fully recover and get back to normalcy.

The month of July was mixed in terms of news flows. The positive lag effect of the general election outcome and the lower than expected current account deficit (CAD) were the major positives. In addition, the full budget announced that full year fiscal deficit for FY25 would be further cut from 5.1% to 4.9% of GDP. Apart from these positive triggers, there were some negative triggers in the full budget. The rates of securities transaction tax (STT) on futures & options, tax on STCG and LTCG were raised. While the former was intended to curb speculation by retail in F&O, the latter was to bring greater alignment with risk.

MACRO PICTURE OF FPI FLOWS IN LAST 3 YEARS

Here is a consolidated picture of FPI net flows across the last 3 years viz. 2022, 2023 and the year 2024 as of date. The table captures the net flows into equity and debt & hybrids separately, to give an overall picture of FPI flows.

Calendar Month	FPI Flows Secondary	FPI Flows Primary	FPI Flows Equity	FPI Flows Debt/Hybrid	Overall FPI Flows
Calendar 2022 (₹ Crore)	(146,048.38)	24,608.94	(121,439.44)	(11,375.78)	(132,815.22)
Calendar 2023 (₹ Crore)	1,27,759.75	43,347.14	1,71,106.89	65,954.38	2,37,061.27
Jan-2024 (₹ Crore)	(28,863.89)	3,120.34	(25,743.55)	19,150.21	(6,593.34)
Feb-2024 (₹ Crore)	(3,194.72)	4,733.60	1,538.88	30,277.95	31,816.83
Mar-2024 (₹ Crore)	29,152.54	5,945.78	35,098.32	16,987.88	51,996.20
Apr-2024 (₹ Crore)	(23,331.04)	14,659.77	(8,671.27)	(7,588.75)	(16,260.02)
May-2024 (₹ Crore)	(30,613.87)	5,027.54	(25,586.33)	12,675.47	(12,910.86)
Jun-2024 (₹ Crore)	24,345.55	2,218.99	26,564.54	15,192.90	41,757.44
Jul-2024 (₹ Crore)	26,059.05	6,305.79	32,364.84	16,431.20	48,796.04
Aug-2024 (₹ Crore) #	(1,048.27)	20.86	(1,027.41)	3,475.32	2,447.91
Total for 2024 (₹ Crore)	(7,494.65)	42,032.67	34,538.02	1,06,512.18	1,41,050.20
For 2024 ($ Million)	(880.36)	5,048.95	4,168.59	12,804.41	16,973.00
# – Recent Data is up to August 02, 2024

Data Source: NSDL (Negative figures in brackets)

Here are some key takeaways from the summary of FPI flow numbers updated till the close of August 02, 2024.

1. For the last full calendar year 2023, the total net inflows into equities stood at ₹1.71 Trillion. This comprised of secondary market inflows of ₹1.28 Trillion and primary market (IPO) inflows of 0.43 Trillion. The net FPI flows into equity in 2023 at ₹1.71 Trillion more than offsets the net FPI outflow from equities of ₹1.21 Trillion in the year 2022. IPO flows were robust in both the years; 2022 and 2023.
2. What is the FPI flow story in year 2024 till date. As of the close of August 02, 2024, the FPIs were net buyers in India to the tune of ₹1,41,050 Crore. However, out of this net buying amount, ₹1,06,512 Crore (75.5%) came from debt market inflows, while equities saw net outflows of ₹34,538 Crore. Debt flows continue to be driven by index inclusion expectations. If you break up the ₹34,538 Crore of FPI net inflows into equity in 2024 till date, the secondary markets saw net outflows of ₹7,495 Crore while the IPO markets saw net inflows from FPIs of ₹42,033 Crore. Equity IPOs and debt have saved the day for FPI flows in 2024, while secondary market flows remain under pressure.

FPIs have been rather ambivalent about India in 2024 and that is not surprising considering big events like the general elections, interim budget, full budget, geopolitical risks etc. The Modi 3.0 government is in place and VIX has come down to normal levels. Now, FPIs will start factoring in other positives in the last 2 months like the GDP growth, fiscal deficit control, and the lower than expected current account deficit (CAD). However, the short term outlook for FPI flows is likely to be clouded due to several headwinds like the geopolitical strife in West Asia, economics of oil, China economy, China geopolitics, Yen carry trade, Situation in Bangladesh etc. Unfortunately, most of these factors are entirely outside the control of the Indian government and could pose serious extraneous risks to FPI flows in the coming weeks.