FPI selling in Indian equities mellows to $2.56 Billion in November 2024

6 Dec 2024 , 03:00 PM

FPIS NET SELL $2.56 BILLION IN NOVEMBER 2024

For the month of November 2024, the FPIs continued to be net sellers. However, the net FPI selling in equities to the tune of $2.56 Billion, was nowhere close to the $11.2 Bilion of FPI selling in equities seen in the month of October 2024. The FPI inflows into equities in November 2024 were, once again, saved by the strong IPO inflows. If you break up the FPI selling figure for November 2024, the secondary market FPI selling was to the tune of $4.66 Billion, while they infused $2.10 billion into IPOs in the month of November. Thus, the net FPI outflow figure for November 2024 sobered to $2.56 Billion in the month. FPIs continue to infuse funds into IPOs (through the anchor allocation route and through the regular QIB route), but continued to be net sellers in secondary market equities. This was also exacerbated by the fact that several IPOs went out of the pre-IPO placement lock-in period during November 2024, leading to a sharp bout of FPI selling.

In terms of data flows, there were several concerns for the Indian markets. To begin with, the inflation surged to 6.21% with food inflation in double digits. That put pressure on FPI flows. Secondly, the Fed cut rates by 75 basis points between September and November, but the RBI is yet to effect even its first rate cut. With the inflation elevated at 6.21%, it was already very likely that the rate cuts could be envisaged only in the February 2025 meeting. Thirdly, the GDP data for Q2 also disappointed at 5.4%, sharply lower than was expected by the economists and analysts alike. This is likely to have an impact on the full year GDP forecast. Above all, Trump has now been threatening steep tariffs on Indian imports also. Amidst these negative stream of news and data, it was perhaps a relief that the FPI selling in November 2024 was not too high.

What does the macro picture look like? For November 2024, the FPIs have been largely neutral on debt. What about the 11 months of 2024? For year 2024, FPIs were net sellers in secondary market equities worth $14.08 Billion, but infused $12.37 Billion into IPOs; making them net sellers in equities to tune of just $1.71 Billion. However, debt saw inflows of $18.58 Billion in 2024; resulting in overall  infusion in 2024 of $16.87 Billion.

FPI AUC UP MARGINALLY IN NOVEMBER 2024

Assets under custody (AUC) is a function of FPI flows and price accretion or depletion (as the case may be). Between October 2024 and November 2024, FPI AUC inched up marginally from $845 Billion to $851 Billion. The details are captured sector-wise.

Industry Group	FPI AUC (Nov 2024) ($ Billion)	FPI AUC (Oct 2024) ($ Billion)
Financials (BFSI)	246.22	245.91
Information Technology (IT) Services	84.50	79.36
Automobiles and Auto Components	61.72	63.45
Oil & Gas	59.72	46.57
Healthcare and Pharmaceuticals	57.04	58.04
Fast Moving Consumer Goods (FMCG)	49.94	51.33
Capital Goods	46.65	45.76
Consumer Services	39.32	37.02
Power (generation and transmission)	33.62	36.29
Telecommunications	33.05	33.50
Consumer Durables	25.54	26.02
Metals and Mining	23.87	25.26
Realty	18.80	18.33
Construction	16.67	16.19
Services	16.42	17.41
Cement	13.99	14.51
Chemicals	13.84	14.10
Top 17 Sectors	840.80	839.11
Other 6 sectors	9.88	6.22
Total FPI AUC	850.68	845.33

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 November 2024. NSDL has pruned the list of sectors to 23. Out of these 23 sectors, the AUC of the top-17 sectors accounted for 98.84% of total FPI AUC of $850.68 Billion. In September 2024, overall FPI AUC (including equity, debt, and hybrids) had crossed the $1 Trillion mark for the first time ever. Now it is 15% below that mark!

What about the components of AUC as of November 2024. At $246.22 Billion, BFSI dominates the AUC stakes. The other key sectors by AUC were IT, automobiles, oil & gas, healthcare, FMCG, and capital goods. In terms of MOM change in AUC in November 2024, there was value accretion in BFSI, IT, oil & gas, capital goods and consumer services; while there was value depletion in automobiles, healthcare, FMCG, consumer durables, and metals & mining.

FPI BUYING REBOUNDS IN SECOND HALF OF NOVEMBER 2024

In November 2024, FPIs were net sellers of $11.2 Billion in Indian equities; while that moderated to $2.56 Billion in November 2024. After some heavy selling in the first half of November, the weaker rupee attracted a good deal of FPI buying in the second half of November 2024. If you sum up the positive flow sectors, they added up to $1.73 Billion, while the negative flow sectors added up to $4.29 Billion. Let us start with the sectors that saw net inflows from FPIs in November 2024.

FPI Net Buying in Sectors	H1-Nov-24 ($ Million)	H2-Nov-24 ($ Million)	Nov-24 ($ Million)
Information Technology (IT)	+366	+287	+653
Financial Services (BFSI)	-840	+1,136	+296
Realty	+82	+162	+244
Construction	+227	+11	+238
Others	+175	-5	+170

Data Source: NSDL

While IT saw a good deal of defensive buying through the month as a hedge against the weakening rupee, the financial services companies saw net buying of $1.14 billion in the second half of November, after some heavy selling in the first half. Realty and construction also saw net FPI inflows in the month; with IPOs again doing their bit in specific names.

FPIS USED HIGHER LEVELS TO REDUCE OIL, AUTOS, AND TELECOM

Here is a sectoral break-up of FPI net outflows from Indian equities in November 2024.

FPI Net Selling in Sectors	H1-Nov-24 ($ Million)	H2-Nov-24 ($ Million)	Nov-24 ($ Million)
Oil & Gas	-855	-726	-1,581
Automobiles	-523	-361	-884
Telecommunications	-253	-348	-601
Services	-148	-293	-441
Cement	-95	-226	-321
FMCG	-425	+258	-167
Metals & Mining	-153	+10	-143
Power	-107	+13	-94

Data Source: NSDL

Unlike October 2024, which saw 5 sectors with over $1 Billion net selling by FPIs; the month of November saw heavy selling in just 3 sectors; oil & gas, automobiles, and telecom. In all the three spaces, the FPIs used the rally in November to ease some of their positions and used these funds to add on to their positions in banks, financials, and IT stocks. There was selling in cement and FMCG too. In the case of cement, it was more about the pressure on margins, while in the case of FMCG, it was all about weak urban demand. Ironically, even as rural demand has been showing green shoots, it is urban demand that is actually faltering.

OUTLOOK FOR FPI FLOWS IN COMING MONTHS

FPIs have been ambivalent about Indian markets in the second half of 2024 which is not surprising. There are several reasons for the ambiguity. Firstly, the RBI has not budged even as the Fed has already cut rates by 75 basis points. In a sense, RBI is justified that inflation is too high, but there is pressure on bottom lines at the grassroot level. That is keeping FPI wary. Also, FPIs have been wary about the high inflation levels and the impact that tepid capital spending has exerted on the growth of the Indian economy.

So, what is the outlook for FPI flows. The GDP data has been disappointing at 5.4%, but a lot will depend on the current account deficit (CAD) for Q2. The street is expecting a sharp spike in CAD to 1.6% of GDP, and that is likely to put a lot of pressure on the Indian rupee. The other big event for FPIs will be the last Fed policy statement in mid-December, wherein the Fed is expected to cut rates by another 25 bps. But the real challenge in getting FPIs back would be to indicate that the government is serious about reforms. That can be the best antidote for this rather lethal combination of low growth and high inflation!