FIIs sell aggressively in the second half of April 2024

9 May 2024 , 10:52 AM

FPIS NET SELL MORE THAN $1 BILLION IN APRIL 2024

The FPIs started the fiscal year FY24 with a whimper, turning net sellers to the tune of $1.04 Billion. Ironically, the FPIs were net buyers in the first half of April, but sold heavily in the second half of the month. For instance, FPIs bought $647 Million of equities in the first half of April 2024 but were net sellers to the tune of $1,688 Million in the second half of April, result in overall net selling of $1.04 Billion in April 2024. This was a stark contrast to the month of March 2024, which saw the FPIs infusing an impressive $4.24 Billion. FPI flows had slowed in January and February after the record $9 Billion infusion in December 2023. For example, FPIs were net sellers to the tune of $417 Million in equities in January 2024 and net buyers worth $182 Million in February 2024. However, even in March 2024, the FPIs had been aggressive net sellers in the second half of the month.

If you look at the break-up of FPI outflows in April 2024 to the tune of $1.04 Billion, there was an infusion of $1.76 Billion into the IPOs while the secondary markets actually saw net selling by FPIs to the tune of $2.80 Billion. With this kind of selling in the secondary markets by the FPIs, the net selling was fairly dominant at a sectoral level with 3 sectors seeing net selling to the tune of $1 Billion each. The top 5 sectors saw combined net inflows of $2.24 Billion while the bottom 5 sectors saw net outflows of $3.71 Billion in the month of April 2024. Much of the FPI outflows in April 2024 in the secondary markets were driven by the sudden spike in the VIX ahead of the election outcome expected on June 04, 2024.

WHAT INFLUENCED FPI FLOWS IN APRIL 2024

Several factors influenced FPI flows in April 2024. Some of the key drivers in the month were India IIP, current account deficit, Fed guidance and rupee weakness. Here is a quick dekko.

• The month of April 2024 saw signs of rising inflation in the US. The PCE inflation and the consumer inflation spiked during the month and even the real GDP growth came in much lower than expected at 1.6%. This lower GDP was largely an outcome of higher than expected inflation. This resulted in the Fed virtually putting off its rate cut decision and now the CME Fedwatch is pencilling the first rate cut only in September 2024. Fed members do not want to go for rate cuts till inflation is clearly moving toward 2%.
• India’s quarterly numbers for most of the large companies were done in April and the broad message was that while net profit growth had been maintained, the top line had suffered. It was not just about rural sales, but even the Red Sea crisis and the fears of global economic slowdown had hit global demand for Indian products. The result was weak growth in sales. Even on a sequential basis, sales were lower QOQ.
• On the positive side, the India trade deficit for March came in at just about $15.6 Billion, the lowest level in the last 1 year. The full year trade deficit for goods and services put together is around $78 Billion. That means, India could end up with current account deficit of around 1% of GDP, which would be an amazing achievement. If it happens, it is likely to please the FPIs and also the global rating agencies.
• Finally, the month of April saw a gradually tapering of the crude oil prices and also of the dollar index. The dollar index, a barometer of dollar strength, sobered to below the 105 levels, which was positive for the rupee and consequently for FPI flows too. In addition, the price of Brent crude fell sharply after crossing $90/bbl briefly. A spike in US crude inventories and expectations of record supplies by the US pulled down the price of crude oil sharply, allowing the Indian policymakers to heave a sigh of relief.

Like in March 2024, the first half of April saw net buying by FPIs, but the rise in VIX saw a sudden surge in selling pressure in the second half as FPIs opted to take some of their profits off the table. With equity AUC nearing $800 Billion, it is only logical they do that.

FPI AUC SCALES TO RECORD $794 BILLION IN APRIL 2024

Assets under custody (AUC) is the closing market value of equities held by FPIs, and is a function of FPI flows and movements in major stock market indices. In April 2024, the flows were negative, but the markets still managed to scale lifetime highs. That ensured that the FPI AUC got tantalizingly close to the $800 Billion mark. Between March 2024 and April 2024, the FPI AUC is up 3.13%. However, if you compare the current AUC with the pervious peak AUC of $667 Billion in October 2021, it is a good 18.97% higher. Here is a quick MOM comparison of FPI AUC

Industry Group	FPI AUC (Apr 2024) ($ Billion)	FPI AUC (Mar 2024) ($ Billion)
Financials (BFSI)	231.18	223.10
Oil & Gas	72.44	72.39
Information Technology (IT) Services	67.48	70.31
Automobiles and Auto Components	60.73	57.97
Fast Moving Consumer Goods (FMCG)	47.94	48.39
Healthcare and Pharmaceuticals	45.23	45.36
Capital Goods	39.40	35.11
Power (generation and transmission)	36.63	33.55
Consumer Services	30.00	28.23
Telecommunications	27.46	24.28
Metals and Mining	25.12	23.35
Consumer Durables	23.90	23.58
Services	17.39	16.21
Construction	17.31	17.69
Realty	16.79	15.50
Cement	13.80	13.75
Chemicals	12.64	11.86
Top 17 Sectors	785.43	760.59
Other 6 sectors	8.13	8.92
Total FPI AUC	793.56	769.51

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 April 2024. NSDL has pruned the list of sectors to 23. Out of these 23 sectors, the AUC of the top-17 sectors accounted for 98.98% of total FPI AUC of $793.56 Billion. The FPI AUC has scaled a new historic peak in April 2024, and is now just shy of $800 Billion.

At $231.18 Billion, it is the BFSI sector that has continued to dominate the AUC stakes, despite some heavy selling in recent months. The AUC of financials accounts for 29.13% of the total AUC of FPIs. The other key sectors by AUC were oil & gas, IT, automobiles, FMCG, healthcare, capital goods and power. In terms of MOM change in AUC in April 2024, positive accretion was seen in BFSI, automobiles, Capital goods, power, telecom, and metals. On the downside, AUC depletion was seen in IT and FMCG. Surprisingly, chemicals saw good accretion, albeit on a small base.

APRIL FPI BUYING DRIVEN BY TELECOM, POWER, AND CAPITAL GOODS

In a month when the FPIs were net sellers of $1.04 Billion from Indian equities, one would presume there were limited positive flows. But, there were a good number of them.

FPI Net Buying in Sectors	H1-Apr-24 ($ Million)	H2-Apr-24 ($ Million)	Apr-24 ($ Million)
Telecommunications	199	792	991
Power	617	-100	517
Capital Goods	147	288	435
Services	89	211	300
Miscellaneous Sectors	44	162	206
Consumer Services	205	-46	159
Automobiles and Ancillaries	201	-67	134
Chemicals	45	48	93

Data Source: NSDL

The top 5 sectors that saw net inflows from FPIs were telecom, power, capital goods, services, and others. As usual the inflows into telecom were driven by Bharti Airtel in the secondary market while IPO flows into the Bharti Hexacom IPO and the Vodafone Idea FPO also helped. Power and capital goods continued to see FPI interest on the back of bets on the revival of the capital cycle and sustained capex by the government post full budget. Other inflows were largely driven by IPOs in April 2024.

FPI APRIL SELLING DOMINATED BY IT, BFSI AND FMCG

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

FPI Net Selling in Sectors	H1-Mar-24 ($ Million)	H2-Mar-24 ($ Million)	Mar-24 ($ Million)
Information Technology (IT)	-558	-588	-1,146
Financial Services (BFSI)	385	-1,503	-1,118
Fast Moving Consumer Goods (FMCG)	-521	-427	-948
Oil & Gas	-111	-173	-284
Consumer Durables	-195	-13	-208

Data Source: NSDL

In a month, when the FPIs were net sellers to the tune of $1.04 Billion, the selling obviously had to be intense in select sectors. No prizes for guessing, but heavy selling continued in IT stocks after a very tepid quarter where guidance was much lower than expected. The BFSI selling was largely driven by the late sell-off in Kotak Bank after the ban imposed on RBI. FMCG was another sector that saw sustained FPI selling in April after weak rural sales and weak export demand continued to limit the growth of FMCG companies.

If we thought that this election was free of VIX spikes, we were mistaken. In the last couple of weeks, the VIX has seen huge oscillations. It spiked from 10 to 15 and then fell all the way back to 10, before spiking in the next week to 16.5 levels. This uncertainty is spooking the FPIs who prefer to stay light on Indian markets, explaining most of the selling in April.

BIG PICTURE OF FPI FLOWS IN LAST 3 YEARS

Here is a combined 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) #	1,109.65	46.37	1,156.02	(1,927.10)	(771.08)
Total for 2024 (₹ Crore)	(25,127.46)	28,505.86	3,378.40	56,810.19	60,188.59
For 2024 ($ Million)	(2,997.28)	3,428.79	431.51	6,850.49	7,282.03
# – Recent Data is up to May 03, 2024

Data Source: NSDL (Negative figures in brackets)

Here are some key takeaways from the summary of FPI flow numbers up to the close of March 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 Friday, May 03, 2024, the FPIs were net buyers in India to the tune of ₹60,189 Crore. However, out of this net buying amount, ₹56,810 Crore came from debt market inflows and just about ₹3,378 Crore came in the form of net equity inflows. Debt flows were driven by index inclusion expectations. If you break up the ₹3,378 Crore of FPI net inflows into equity in 2024, the secondary markets saw net outflows of ₹25,127 Crore while the IPO markets saw net inflows from FPIs of ₹28,506 Crore. Equity IPOs and debt have saved the day.

FPIs have been rather ambivalent about India in 2024 and that is not surprising. Data flows have been mixed, corporate results have been under pressure and election outcome is still an overhang. The sharp fluctuations in VIX is indicative that the market is getting jittery about the political uncertainty. FPIs would, most likely, commit flows in a big way only after the election is completed, a new government is in place and the full budget presented. The first trigger will be the outcome of the general elections on June 04, 2024.