FIIs sell Indian equities worth $3.06 Billion in May 2024

6 Jun 2024 , 09:21 AM

FPIs NET SELL MORE THAN $3 BILLION IN MAY 2024

In the first two months of FY24, the FPIs have sold $4.10 Billion of Indian equities, largely on the back of political uncertainty and the rising VIX. After selling $1.04 Billion of equities in April 2024, the FPIs nearly tripled their selling in May to $3.06 Billion. However, bulk of the selling by the FPIs happened in the first half of May, with second half more sober. FPIs sold $-3,026 Million of equities in the first half of May 2024 and were net sellers to the tune of a mere $-36 Million in the second half of May 2024, resulting in overall net selling of $3.06 Billion in May 2024. This is a stark contrast to March 2024, which saw FPIs infusing an impressive $4.24 Billion into Indian equities. Effectively, the inflows of March 2024 have been neutralized by FPI selling in April and May 2024. There is another interesting piece of statistics here. The total gross selling in the month of May 2024 was at $(4,549) Million while the gross buying was at $1,487 Million. The moral of the story is that; amidst the selling, there was also buying coming into select sectors.

If you look at the break-up of FPI outflows in May 2024 to the tune of $3.06 Billion, there was an infusion of $0.62 Billion into the IPOs while the secondary markets actually saw net selling by FPIs to the tune of $(3.68) Billion. With this kind of selling in the secondary markets by the FPIs, the net selling was fairly dominant at a sectoral level with 4 sectors seeing net selling to the tune of more than $500 Million. The top 5 sectors saw combined net inflows of $1.41 Billion while the bottom 5 sectors saw net outflows of $(3.37) Billion in the month of May 2024. Much of the FPI outflows in May 2024 in the secondary markets were driven by the sudden spike in the VIX to above 24 levels and the uncertainty over the outcome of the elections. Eventually, the ruling NDA did manage a majority, although it was much smaller than expected and also the ruling government will now be much more dependent on its coalition partners in the NDA.

WHAT INFLUENCED FPI FLOWS IN MAY 2024

Broadly, there were 3 factors that had an impact on the FPI flows in the month of May 2024.

• Political uncertainty was the biggest factor. Even as the domestic investors and the political analysts were predicting a landslide win for the ruling coalition, the final outcome was much more modest. In a sense, the FPIs were right in being sceptical about the nature of the political outcomes. The government formation is likely to happen only after the swearing in on Saturday. However, the PM has already given indications that the reforms process and the capex program will not be disturbed; if anything, they will only be intensified.
• FPI flows were largely influenced by the spike in the volatility index (VIX). During the month of May 2024, the VIX went up to above 20 and later even settled above the 25 mark. This was a direct outcome of the political uncertainty leading to FPIs heavying buying protection in the market. That spiked the VIX, as the markets betrayed a sense of fear and caution in the month.
• On the positive side, the RBI dividend to the government was at a record level of ₹2.11 Trillion. This has positive implications in the sense that it reduces the fiscal deficit for the current fiscal year and also gives scope for expanding the capex investments. The growth in capex had been cut from 30% to 11.1% in FY25 in the interim budget and this surge will allow that figure to be raised to 20%. Incidentally, most of the good news for FY24 like the better than expected GDP growth and the lower than expected fiscal deficit came in on the last day of the month, so the markets could not process all that data. Hopefully, the impact should be more salutary in the next few months.

In May 2024, almost the entire selling happened in the first half of the month with financial services and IT bearing the brunt of the selling.

FPI AUC SCALES TO RECORD $797 BILLION IN MAY 2024

Assets under custody (AUC) is the closing market value of equities held by FPIs, and is a function of FPI flows as well as the price accretion / depletion in that period. In May 2024, the flows were negative at $-3.06 Billion, but the markets still managed to remain robust. That ensured that the FPI AUC got tantalizingly close to the $800 Billion mark. Between April 2024 and May 2024, the FPI AUC is up less than 1%. However, if you compare the current AUC with the pervious peak AUC of $667 Billion in October 2021, it is a good 19.52% higher. Here is a quick MOM comparison of FPI AUC

Industry Group	FPI AUC (May 2024) ($ Billion)	FPI AUC (Apr 2024) ($ Billion)
Financials (BFSI)	227.72	231.18
Oil & Gas	70.79	72.44
Information Technology (IT) Services	65.16	67.48
Automobiles and Auto Components	62.91	60.73
Fast Moving Consumer Goods (FMCG)	47.66	47.94
Capital Goods	45.12	39.40
Healthcare and Pharmaceuticals	44.40	45.23
Power (generation and transmission)	38.11	36.63
Consumer Services	29.26	30.00
Telecommunications	28.76	27.46
Metals and Mining	26.76	25.12
Consumer Durables	23.76	23.90
Realty	17.70	16.79
Services	17.69	17.39
Construction	17.55	17.31
Cement	13.54	13.80
Chemicals	12.12	12.64
Top 17 Sectors	788.99	785.43
Other 6 sectors	8.21	8.13
Total FPI AUC	797.20	793.56

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 May 2024. NSDL has pruned the list of sectors to 23. Out of these 23 sectors, the AUC of the top-17 sectors accounted for 98.97% of total FPI AUC of $797.20 Billion. The FPI AUC has scaled a new historic peak in May 2024, and is just shy of $800 Billion.

At $227.72 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 28.56% of the total AUC of FPIs. The other key sectors by AUC were oil & gas, IT, automobiles, FMCG, capital goods, healthcare, and power. In terms of MOM change in AUC in May 2024, positive accretion was seen in capital goods, automobiles, power, and metals & mining. On the downside, AUC depletion was seen in financial services, oil & gas, IT, and healthcare.

MAY-24 FPI BUYING DRIVEN BY CAPITAL GOODS, CONSUMER SERVICES, REALTY

In a month when the FPIs were net sellers of $3.06 Billion from Indian equities, one would presume there were limited positive flows. But, there were quite a few of them.

FPI Net Buying in Sectors	H1-May-24 ($ Million)	H2-May-24 ($ Million)	May-24 ($ Million)
Capital Goods	45	678	723
Consumer Services	88	243	331
Realty	28	134	162
Telecommunications	-33	162	132
Chemicals	-11	68	57

Data Source: NSDL

The top 5 sectors that saw net inflows from FPIs were capital goods, telecom services, realty, telecom, and chemicals. The inflows into consumer services and telecom came largely through IPOs. Capital goods and realty continued to see FPI interest on the back of bets on the revival of the capital cycle and sustained capex by the government post the full budget. The remaining inflows were very marginal in nature.

MAY-24 FPI SELLING DOMINATED BY BFSI, IT, OIL, AND FMCG

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

FPI Net Selling in Sectors	H1-May-24 ($ Million)	H2-May-24 ($ Million)	May-24 ($ Million)
Financial Services (BFSI)	-1,160	+133	-1,027
Information Technology (IT)	-667	-27	-694
Oil & Gas	-336	-333	-666
Fast Moving Consumer Goods (FMCG)	-139	-362	-501
Automobiles	-85	-399	-484
Power Sector	-95	-270	-365
Construction	-456	+135	-321
Cement	-96	-55	-151
Services	-12	-106	-118

Data Source: NSDL

In a month, when the FPIs were net sellers to the tune of $3.06 Billion, the selling obviously had to be intense in select sectors. No prizes for guessing, but heavy selling continued in financial services at $1.03 Billion. IT stocks, Oil & Gas, and FMCG saw selling in excess of $500 Million while auto selling was close to $500 Million. In short, it was index based selling by FPIs in the month of May 2024. Financials saw heavy selling despite fairly good number declared in the March 2024 quarter with the banking sector leading the top line and bottom line growth. IT and FMCG was more on concerns over demand growth.

In the last few weeks, vicious cycle was seen in the markets. After the VIX remained quiet for a very long time, it rallied sharply since April, touching levels of over 25. In fact, greater caution from FPIs let to a surge in the VIX and the high VIX again led to caution by FPIs. This vicious cycle has been playing out for the last 2 months and hopefully, should not subside with the election results coming out. It is going to be back to business for the government from the next week.

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) #	(30,613.87)	5,027.54	(25,586.33)	12,675.47	(12,910.86)
Total for 2024 (₹ Crore)	(56,850.98)	33,487.03	(23,363.95)	71,412.76	48,048.81
For 2024 ($ Million)	(6,795.89)	4,026.38	(2,769.51)	8,603.21	5,833.70
# – Recent Data is up to May 31, 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 May 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 May 2024, the FPIs were net buyers in India to the tune of ₹48,049 Crore. However, out of this net buying amount, ₹71,413 Crore came from debt market inflows and equities saw net outflows of (₹23,364) Crore. Debt flows were driven by index inclusion expectations. If you break up the ₹23,364 Crore of FPI net outflows from equity in 2024, the secondary markets saw net outflows of ₹56,851 Crore while the IPO markets saw net inflows from FPIs of ₹33,487 Crore. Equity IPOs and debt have saved the day for FPI flows.

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 was a major overhang. The sharp fluctuations in VIX is indicative that the market is getting jittery about the political uncertainty. Going ahead, markets will get rid of most of the worries. The election results are out, GDP has growth better than expected and fiscal prudence has won the day. The RBI mega dividend of ₹2.11 Trillion is just an example of the robust revenue flows of this government. The next test for FPIs would be whether the government can continue to follow a reformist path that combines growth, price stability and fiscal prudence. That remains the Million dollar question.