What FIIs bought and sold in India in August 2023?

6 Sep 2023 , 09:34 AM

Between May 2-23 and July 2023 ,the Foreign portfolio investors (FPIs) infused $5.5 billion on an average each month. In comparison, the net FPI infusion into Indian equities was just about $1.48 billion. Now, that is not exactly bad, but it is relatively tepid compared to the aggressive inflows in the previous 3 months. There have been several headwinds for the FPI flows in August. Firstly, there is still a lot of global hawkishness while the downgrade of US rating by Fitch has also led to a lot of risk-off flows against EMs. To add to these challenges, the Indian markets are facing sharply higher inflation of 7.44% as of July 2023 and all these factors have not been too helpful in encouraging FPI flows into India. While FPIs have not entirely abandoned Indian markets, they are just biding time on the sidelines.

However, more than inflation, the one thing that should warm the cockles of the hearts of FPIs is the GDP growth reported by India for the first quarter ended June 2023. At 7.8% real GDP growth in Q1FY24, India is not just the fastest growing large economy in the world, but it is the fastest growing economy by a margin. Also, the spike in inflation appears to be more an outcome of a spike in food inflation, caused by the vagaries of monsoons in India this year. There is the concern over oil as Brent Crude crosses $90/bbl. However, the good news is that core inflation is tapering lower. But the real story of FPI flows in August, as we shall see later, is the change in the mix. For the last 3 months, FPIs infused $6 billion into banks and financial service companies. In August 2023, the FPIs are net sellers in banking but most of the infusion went into the power sector and the capital goods sector. Clearly, the FPIs appear to be getting neutral on financials and are betting on a revival of the capital cycle.

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

Assets under custody (AUC) is the closing market value of all equities held by FPIs. The AUC value is a function of the flows and also by the change in value of the holdings due to rise or fall in the market. Between the close of July 2023 and August 2023, the AUC has marginally fallen by -0.40%. However, AUC is now just a tad short of the peak of $667 billion and the growth in AUC has been genuinely robust over April and May. In August, the AUC got impacted by the market correction, since net FPI flows were still positive. The Nifty faced stiff resistance at 20,000 and has since been making lower tops and lower bottoms, betraying a weakness in the market structure. From a peak of $667 billion AUC touched in October 2021, the FPI AUC fell to a low of $523 billion in June 2022. So, the bounce from lower levels has surely been appreciable. At $644 billion as of the close of August 2023, the FPI AUC is just $23 billion shy of the previous peak. The table captures the MOM change.

Industry  Group	FPI AUC (Aug 2023) ($ billion)	FPI AUC (Jul 2023) ($ billion)
Financials (BFSI)	212.08	215.33
Information Technology (IT) Services	62.92	60.55
Oil & Gas	56.65	60.33
Fast Moving Consumer Goods (FMCG)	45.58	47.07
Automobiles and Auto Components	41.88	42.03
Healthcare and Pharmaceuticals	35.08	35.22
Capital Goods	26.91	24.74
Consumer Durables	22.75	22.25
Power (generation and transmission)	22.66	21.96
Metals and Mining	19.27	20.50
Consumer Services	17.59	16.40
Telecommunications	16.37	17.03
Construction	13.35	13.12
Chemicals	11.99	11.72
Services	11.50	11.50
Cement	11.32	11.44
Top 16 Sectors	627.89	631.16
Other 7 sectors	16.58	16.18
Total FPI AUC	644.47	647.34

Data Source: NSDL

The table above captures the top 16 sectors with AUC above $10 billion as of the close of August 2023. NSDL has already pruned the list of sectors from 40 to 23. Out of these 23 sectors that FPIs invested in, AUC of the top-16 sectors accounted for 97.43% of total FPI AUC of $644.47 billion. While the FPI flows were tepid in the first half of August at just $89 million, it picked up momentum in the second half at $1,394 million, largely helped by some big purchase deals by GQG Partners. For a change, FPIs were net sellers in banking and net buyers in the IT sector. However, the real action was in the sectors that act as the lead indicator of revival in the capital investment cycle in India.

The BFSI space, comprising of banks, NBFCs and insurance accounted for 32.91% of overall FPI AUC. In absolute terms, there has been accretion in AUC across sectors like IT, capital goods and power. At the same time, the AUC on a MOM basis has tapered in the case of BFSI, oil & gas and FMCG. The AUC has been more or less flat in the case of automobiles and the healthcare sector. BFSI sector saw its AUC dip marginally to the $212 billion mark, while the IT sector widened its lead over the oil & gas sector. Clearly, the story of FPI AUC shift in August 2023 appears to be a bet on the revival of the capital investment cycle. The sectoral flow preferences, as we shall see in the subsequent segment, was also giving out a similar message on the colour of the FPI flows in August 2023.

 

FPIs buy Power, Capital Goods, IT in August 2023, sell metals, BFSI, FMCG

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

Where FPI money flowed in	Where FPI money flowed out
Sector	Amount ($ million)	Sector	Amount ($ million)
Power Sector	+1,398	Metals & Mining	-840
Capital Goods	+1,007	Financials (BFSI)	-784
Information Technology (IT)	+495	FMCG	-315
Consumer Services	+246	Oil & Gas	-269
Healthcare	+173	Telecom	-123

Data Source: NSDL

Let us first focus on sectors getting positive flows from FPIs in August 2023. No to opinions about it; it was a bet on the revival of the capital cycle. Power sector led the way at $1,398 million of inflows followed by capital goods at $1,007 million. Both these sectors got over $1 billion of FPI flows in a month after a very long time. The FPIs had infused nearly $6 billion into Indian BFSI stocks between May and July 2023, out of the $17 billion infused into Indian equities overall. IT was the other surprise positive package seeing net inflows of $495  million. There has been a concerted bet on IT as a hedge against the weak rupee. Also, mid-cap IT is attracting a lot of FPI attention. Other sectors to see strong inflows were Consumer Services at $246 million and Healthcare at $173 million. 

On the sell side, there were several sectors seeing heavy selling by the FPIs. As fears of the real estate sector crashing in China picked up, there was some real selling in metals & mining which saw net FPI selling of $840 million. Metal prices are still a function of China demand. BFSI saw $784 million of outflows over macro concerns like higher inflation, global hawkishness and the downgrades by Fitch and Moody’s. FMCG took a hit of $315 million of FPI selling in August due to rising crude prices and weak rural demand. Other sectors like oil & gas and telecom also saw good amount of FPI selling in August 2023.

What triggered the FPI flows into sectors in August 2023

The sentiments of FPIs changed sharply after Fitch downgraded US debt ratings by a notch from AAA to AA+. To add to the woes, Moody’s also downgraded small and mid-sized US banks. Coupled with uncertainty over rates and inflation, the FPI s turned cautious.

• Like in the previous months, the preference is still for domestic players. The only difference is that the bet is not on domestic consumption plays but on domestic investment plays. So, BFSI and FMCG were not the preferred picks in August 2023, but power and capital goods were the hot favourites of FPIs.

   

• The revival in the IT sector flows, may or may not be sustainable. However, the broad consensus appears to be that the worst could be over for the IT sector. After all, IT has still generated the best CAGR returns in India over the last 10  years. You really cannot miss out on that reality.

   

• If one looks at the 3 sensitive sectors viz. capital goods, construction and Power, these sectors saw overall inflows of $2.50 billion on a net basis; almost twice that of the average flows in last 2 months. The broader bet is on India specific investment ideas.

A glance at overall FPI flows break-up in August 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	9,232.57	3,029.71	12,262.28	6,075.54	18,337.82
Sep-2023 #	426.45	234.47	660.92	855.00	1,515.92
Total for 2023	1,13,057.30	22,890.23	1,35,947.43	25,231.77	1,61,179.20
# – September Data is up to 05th September

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 August 2023 in particular and for calendar year 2023 in general. In the first 8 months of calendar 2023, FPIs have infused Rs135,947 crore into Indian equities while their total infusion into equity and debt combined was Rs161,179 crore. What is more interesting is that, this is after offsetting the heavy selling by FPIs in January and February 2023. Can calendar year 2023 recoup most of the FPI outflows between October 2021 and Jun 2022. That is something only the last 4 months of the calendar year will tell us.