What FIIs bought and sold in India in December 2021?

7 Jan 2022 , 08:32 AM

With the Fed turning extremely hawkish since Nov-21, heavy FPI selling was always expected in Dec-21. Apart from Fed hawkishness, FPIs have also worried about rising inflation, pressure on corporate bottom-line and overall valuations in India. If you look at the Dec-21 quarter, FPIs net sold $1.74 billion in equities in Oct-21, $795 million in Nov-21 and have sold $2.53 billion in Dec-21. That is a little over $5 billion sold in the last quarter.

Unlike the previous months, when the IPO flows sort of neutralized the secondary market outflows, the gap was too huge in December. The selling was relentless through the month. For example, if you look at Dec-21, the FPIs sold $1.36 billion in the first half and $1.17 billion in the second half of the month.

But, first a look at how the equity Assets Under Custody (AUC) of the foreign portfolio investors (FPIs) stands at the close of Dec-21.

Data Source: NSDL

The chart covers the top 17 sectors where AUC is more than $10 billion. Out of 40 sectors that FPIs invest in, AUC of these 17 sectors account for 93.5% of the total AUC of $654 billion. The AUC has picked up from $639 billion in Nov-21 to $654 billion in Dec-21, although it is still below the levels of $660 billion as of end Oct-21. The late rally in equities in the last week of Dec-21 helped recover some value for FPIs.
Financials, comprising of banks, NBFCs and insurance account for 34% of total FPI AUC, which approximately matches with the weight of financials in the Nifty. The other significant AUC contributors are IT at $100.86 billion, Oil & Gas $66.07 billion, FMCG $37.98 billion, Healthcare $32.68 billion and automobiles $26.57 billion.

Banks and NBFCs saw the sharpest sequential fall in AUC while the losses in other sectors were relatively smaller. In terms of AUC value gainers, IT and insurance stood out. Insurance was one sector that attracted a good deal of value buying largely on account of the Star Health & Allied Insurance IPO during the month.

What sectors did FPIs buy into in Dec-21

FPIs sold $2.53 million from Indian equities in Dec-21 overall, which is roughly equal to the total selling in the months of October and November combined.

Data Source: NSDL

With $2.53 billion of net selling by FPIs in Dec-21, it was but obvious that selling sectors would dominate buying sectors. However, there was net buying visible in certain sectors. For instance, Insurance saw net buying in Dec-21 to the tune of $674 million, but that was largely supported by the FPI buying in the Star Health IPO. FPIs also bought insurance stocks as a BFSI hedge for banks and NBFCs. The other 2 sectors to see inflows were capital goods and chemicals, although combined FPI inflows in these sectors was just $258 million.

Sectors that FPIs sold into in Dec-21

No prizes for guess but the selling was dominated by banks and NBFCs. FPIs net sold banking stocks worth $842 million and NBFCs worth $767 million in the month of Dec-21. This is still better than Nov-21 wherein FPIs had sold banking stocks worth $2.10 billion.

With the Fed turning hawkish, FPIs are worried about banks on two counts. Banking NIMs are a concern as is potential losses on their investment portfolios. A more practical reason was that most FPIs were heavily invested in financials and this was an opportunity to lighten their positions.

Among other major sectors to sell-off, FMCG saw outflows of $423 million as higher input costs continue to pinch the operating margins of FMCG companies. There were also fears that Omicron could disrupt their normal business. Like FMCG, Retail sector also saw selling of $233 million on Omicron concerns. Among the other sectors to witness selling were Automobiles ($275m), Healthcare ($246m) and Utilities ($208m). IT and metals also sold off.

Autos have been facing headwinds like weak demand, elusive revenge buying and the shortage of microchips. Overall, FPIs used the opportunity to pare positions in Indian stocks across the board.

IPO versus Secondary Market flows of FPIs in CY 2021

Calendar Year 2021	FPI Flows – Secondary Markets	FPI Flows – IPOs	Overall FPI Flows	Cumulative FPI Flows
Jan-21	2,731.61	-73.49	2,658.12	2,658.12
Feb-21	2,958.68	580.15	3,538.83	6,196.95
Mar-21	491.62	952.58	1,444.20	7,641.15
Apr-21	-1,302.57	8.65	-1,293.92	6,347.23
May-21	-932.25	543.52	-388.73	5,958.50
Jun-21	1,327.39	1,033.32	2,360.71	8,319.21
Jul-21	-2,342.77	829.97	-1,512.80	6,806.41
Aug-21	-817.98	1,102.00	284.02	7,090.43
Sep-21	1.616.51	175.70	1,792.21	8,882.64
Oct-21	-1,931.62	124.24	-1807.38	7,075.26
Nov-21	-4,535.99	3,745.65	-790.34	6,284.92
Dec-21	-4,333.13	1,808.35	-2,524.78	3,760.14

Data Source: NSDL (all figures in $ million)

If you look at the overall flows of foreign portfolio investors in calendar year 2021, they infused $3.76 billion overall. However, FPIs actually sold $7.07 billion in the equity secondary markets but infused $10.83 billion via IPOs, predominantly in digital IPOs like Nykaa, Paytm, Zomato and Policybazaar.

What does this hold for year 2022? The good news is that if IPOs raised Rs.1.31 trillion in calendar 2021, they are expected to raise Rs.2.20 trillion in calendar 2022. In summary, the demand from FPIs for the India IPO story should still hold buoyant. That should be the good news for FPI flows in 2022.