What FIIs bought and sold in India in February 2023?

6 Mar 2023 , 09:24 AM

The year 2022 was an interesting year in terms of FPI/FII flows. The first half of the year was dominated by FPI selling but the second half saw a turnaround in sentiments. FPIs had sold Indian equities worth Rs1.21 trillion during the calendar year 2022 overall, but that hardly gives the true picture. If you break up the year into two halves, H1-2022 saw net FPI selling of Rs2.17 trillion, while the second half of 2022 saw net FPI buying of Rs0.96 trillion. This resulted in overall FPI selling in 2022 at Rs1.21 trillion. In fact, November 2022 and December 2022 saw equity inflows of $4.45 billion and $1.35 billion respectively.

Year 2023 started off on a weak note. January 2023 saw total FPI selling of $3.54 billion. In comparison, the selling in February 2023 was relatively subdued at $639 million. The selling was much sharper in the first half and relatively subdued in the second half. FPI sold equities worth $580 million in the first half of February 2023 while the second half saw FPI selling of just $59 million. The sentiments in 2023 soured after the Fed returned to its hawkish stance as it did not see the inflation reacting as quickly as it had anticipated. That is likely to keep Indian markets and FPI inflows under pressure. But, first let us look at how the assets under custody (AUC) panned out in February 2023.

How sector-wise assets under custody (AUC) panned out in February?

Assets under custody (AUC) is the closing market value of all the equities held by FPIs. Obviously, AUC is a function of flows as well as stock market performance. The AUC of FPIs peaked at $667 billion in October 2021 and fell to a low of $523 billion in June 2022. From June 2022 to November 2022, the AUC rallied by 16.8% to $611.11 billion; amidst positive inflows and a rally in the benchmark indices. 

Since then, the AUC of FPIs has progressively fallen to $583.97 billion in December 2022, $563.13 billion as of January 2023 and to $534.71 billion in February 2023. Ironically, even as Nifty and Sensex are off the June 2022 lows, the FPI AUC is just 2.2% above the June lows. Here is a comparison of sector wise AUC as of February 2023 versus January 2023.

Industry  Group	FPI AUC (Feb 2023) ($ billion)	FPI AUC (Jan 2023) ($ billion)
Financials (BFSI)	180.76	185.01
Information Technology (IT) Services	61.86	63.26
Oil & Gas	54.52	59.62
Fast Moving Consumer Goods (FMCG_	39.08	39.49
Automobiles and Auto Components	31.58	33.32
Healthcare and Pharmaceuticals	26.58	27.81
Consumer Durables	18.07	18.27
Capital Goods	16.43	16.00
Power (generation and transmission)	14.97	20.89
Metals and Mining	14.37	19.90
Telecommunications	13.74	14.22
Consumer Services	12.46	12.77
Chemicals	11.23	11.72
Top 13 Sectors	495.64	522.25
Other 10 sectors	39.07	40.88
Total FPI AUC	534.71	563.13

Data Source: NSDL

The table above captures the top 13 sectors with AUC above $10 billion. NSDL has pruned the list from 40 sectors to 23 sectors. Out of these 23 sectors that FPIs invested in, AUC of the top-13 sectors accounted for 92.7% of total FPI AUC of $534.71 billion. The February 2023 AUC at $534.71 billion is down -5.05% compared to January 2023. 

The BFSI space, comprising of banks, NBFCs and insurance accounted for 33.81% of overall FPI AUC. In absolute terms, there has been a sharp fall in AUC across sectors with power and metals the worst hit. The other significant AUC contributors were Information Technology $61.86 billion, Oil & Gas $54.52 billion, FMCG $39.08 billion, Automobiles $31.58 billion, Healthcare $26.58 billion, and Consumer Durables $18.07 billion. While FMCG AUC was stable, only capital goods saw genuine accretion in AUC over January 2023.

FPIs stay positive on capital goods, services, and IT

Where FPI money flowed in	Where FPI money flowed out
Sector	Amount ($ million)	Sector	Amount ($ million)
Capital Goods	+322	Oil & Gas	-600
Services	+237	Power	-344
Information Technology	+128	Metals & Mining	-319
Healthcare	+113	Consumer Durables	-167
Automobiles	+108	Textiles	-60
Construction	+52	Chemicals	-44

Data Source: NSDL

FPI net outflows in February 2023 at $639 million were relatively subdued compared to January 2023. The FPI selling in February was largely concentrated in the first half of the month. Let us first focus on sectors getting positive flows. Capital led the inflow pack at $322 million and that was largely an outcome of the government giving a huge thrust to the infrastructure sector in the Union Budget announced on 01st February 2023. This promised overflowing order books for capital goods companies and they led the rally. While services saw inflows of $237 million, there was also FPI interest in defensive sectors. IT saw net inflows of $128 million while healthcare saw inflows of $113 million. The revival in demand in the passenger vehicles (PV) segment, also net FPI inflows of $108 million in February.

FPIs sell heavily into oil, power, and metals

FPI outflows in February 2023 were focused largely on oil, power and metals. Oil & gas saw FPI outflows of $600 million, power saw net outflows of $344 million and metals saw outflows of $319 million in February 2023. Ironically, BFSI saw net inflows of $286 million in the first half of the month, but was totally sold into in the second half. Oil & gas selling was on account of oil price uncertainty and selling in Reliance Industries. The power sector selling can be largely attributed to the Adani group while metals and mining stocks came under a lot of pressure; caught between falling prices and rising input costs. Rising rates had an impact on consumer demand and that hit consumer durables sector badly.

Tracking FPI flows into India in year 2023

Calendar Years and Months	FPI Flows –  Secondary Markets	FPI Flows –  IPOs	Overall  FPI Flows	Cumulative  FPI Flows
Year 2021	-7,070.50	+10,830.64	+3,760.14	+3,760.14
Year 2022	-19,586.91	+3086.09	-16,500.82	-16,500.82
January 2023	-3,542.89	+23.11	-3,159.78	-3,519.78
February 2023	-682.15	+34.94	-647.21	-4,166.99

Data Source: NSDL (all figures in $ million)

After seeing heavy FPI outflows of $16.5 billion in 2022, Indian equities have already seen outflows of $4.17 billion in the first 2 months of 2023. Here are key reasons why FPIs remain concerned about Indian equities.

• For most FPIs, Asian emerging markets are a single unit and they always look for attractive relative valuations. At this point, markets like China, Taiwan, Indonesia, South Korea, and Thailand offer better valuation stories.

   

• The Q3FY23 results showed pressure on several fronts. Rural sales are struggling to pick up, export markets are under pressure and cost of funds is sharply higher. The progressively diminishing NIM advantage of Indian banks is also making FPIs wary.

   

• While the news flows on the Adani group are gradually turning positive, FPIs cannot wish away the fact that $140 billion of group market cap is eroded in a little over a month. That is likely to remain an overhang.

   

• Above all, the reality is that global central banks have turned hawkish as inflation remains sticky. That was also confirmed by Governor Waller of the US Fed. This is also likely to impact the RBI stance.

FPI selling pressure is palpable in the first two months of 2023. The good news is that even the second advance estimates of FY23 GDP has come in at a robust 7%. Combined with the PLI scheme and the China-Plus shift, there are still good tidings from India. It remains to be seen if all this good news really translates into FPI inflows in the coming months.