What FIIs bought and sold in India in October 2023?

6 Nov 2023 , 11:35 AM

If September marked the shift of FPI action from being net buyers to net sellers, then October saw that trend getting accentuated. FPIs were net sellers to the tune of $1.78 billion in September, but the net FPI selling spiked by 66% to $2.95 billion in the month of October 2023. In the 6 months between March 2023 and August 2023, FPIs had infused a total sum of $20.62 billion into Indian equities, of which $16.75 billion came just in the 3 months of May, June, and July 2023. In that backdrop, the FPI selling in September and October 2023 does look quite small. 

However, this net figure has been redeemed to some extent by IPO flows. Secondary market selling in September 2023 was actually $3.5 billion on a net basis. FPIs were also net buyers in debt in the month of October, but that is being attributed more to the idle funds lying in the vostro accounts of Russian oil exporters who are not able to take the funds back to the home country due to differences on currency denomination of the trade. Overall, the sentiments remained week, although the robust inflows from LIC and domestic mutual funds, filled up the gap.

What deepened the sell-off by FPIs in October 2023?

There were several reasons that triggered a deepening of FPI selling in October 2023, but we can enumerate some key factors as under.

• Despite the Fed holding rates in the November policy at 5.25% to 5.50% range, the FPIs read hawkish undertones in the Fed statement. After all, PCE inflation is still high at 3.4% while the GDP growth in the US has been very robust at 4.9% in Q3.

   

• More than just the crude, it is the geopolitical risk that is hitting the FPI flows. Apart from the geopolitical uncertainty in West Asia and the Middle East, the FPIs are also apprehensive that key oil trade routes would be affected, if the war intensified.

   

• The last week of October saw the US 10-year bond yields tapering from 4.92% to 4.58%, post the Fed statement. However, the bond yields in the US are still more than 100 bps higher than the June levels and that remains an overhang for FPI flows.

   

• A similar trend was seen in the dollar index (DXY). Last week, it softened from 106.92 to 105.02. However, the level is already high as the dollar index has been above 107 levels only thrice in the last 40 years. For FPIs, it means weak rupee and lower dollar returns.

   

• Finally, there are sectoral concerns. Banking stocks are seeing compression in NIMs in this quarter while IT stocks have a serious guidance issue. Not surprisingly, these were the two sectors that saw the maximum FPI selling pressure in October 2023.

In the midst of these concerns, there have been some positives too. Core sector growth stayed above 8% for the fourth month in a row while fiscal deficit looks on target to stay under 5.9% of GDP for FY24 (basis H1-FY24 update). Let us now turn to how the assets under custody (AUC) of FPI assets shifted in October 2023.

FPI AUC falls to $629 billion in October 2023

Assets under custody (AUC) is the closing market value of all equities held by FPIs. The AUC, is therefore, a function of the flows and also appreciation or depreciation in the major stock market indices. Between the close of September 2023 and October 2023, the FPI AUC has fallen by -3.41% from $651.19 billion to $628.96 billion. AUC has continued to remain short of the peak of $667 billion reported in October 2021, which shows that FPIs are still evaluating India as an investment option. The sharpest fall in the FPI AUC happened between October 2021 and June 2022; when it fell from a peak AUC of $667 billion to a low of $523 billion. At $629 billion as of the close of October 2023, FPI AUC is still about $38 billion shy of the previous peak. Here is the MOM shift.

Industry  Group	FPI AUC (Oct 2023) ($ billion)	FPI AUC (Sep 2023) ($ billion)
Financials (BFSI)	205.90	213.60
Information Technology (IT) Services	61.64	64.27
Oil & Gas	53.46	55.57
Fast Moving Consumer Goods (FMCG)	44.87	45.57
Automobiles and Auto Components	41.90	42.92
Healthcare and Pharmaceuticals	33.97	35.73
Capital Goods	26.39	27.06
Power (generation and transmission)	22.27	23.52
Consumer Durables	21.74	22.50
Metals and Mining	17.92	19.18
Consumer Services	17.71	18.07
Telecommunications	17.20	17.56
Construction	13.65	14.35
Cement	11.36	11.40
Chemicals	11.03	11.56
Services	10.60	11.07
Realty	10.05	9.69
Top 17 Sectors	621.64	643.61
Other 7 sectors	7.32	7.58
Total FPI AUC	628.96	651.19

Data Source: NSDL

The table above captures the top 17 sectors with AUC above $10 billion as of the close of October 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-17 sectors accounted for 98.84% of total FPI AUC of $628.96 billion. The FPI AUC is down sharply in the month due to a combination of a sharp fall in the markets as well as persistent FPI selling. How did the AUC shift between September and October 2023 look like? 

At $205.90 billion, it is the BFSI sector that has continued to dominate the AUC stakes. However, the AUC of the banks took a sharp hit in the latest month on concerns over sustenance of NII growth and NIM levels amidst tightening spreads. In the BFSI space, the insurers and NBFCs have done better than banks. The other key sectors by AUC viz. IT, Oil, FMCG, automobiles and healthcare have all seen AUC tapering in October 2023. Realty and cement were two sectors that gave a good account of themselves in the month of October based on AUC shift. Let us now turn to what the FPIs were betting for and against in the month of October 2023.

FPI buying in October 2023 driven by stock-specific flows

In a month when the net selling by FPIs in equities was $2.95 billion, you cannot expect too many significant sectors seeing FPI buying. Here is a sectoral break-up of the positive net FPI inflows into Indian equities in the month of October 2023, with the colour of flows broken into the first half and second half of the month.

FPI Flows  Into Sectors	H1-Oct 23  ($ million)	H2-Oct 23  ($ million)	Oct-23  ($ million)
Others (RR Kabel, Policybazaar)	429	184	613
Telecommunications	211	2	213
Capital Goods	-33	136	103
Cement	52	-5	47

Data Source: NSDL

The buying was limited and that is obvious in a month when the selling pressure was quite elevated. Stocks like RR Kabel and Policybazaar have seen aggressive buying from global fund, including reputed sovereign funds like Norwegian Pension Fund. The cement sector saw some focused buying into the ACC stock. Otherwise, the action on the buy side was relatively limited with telecom being one of the sectors to see buying during the month

FPIs net sell Financials, IT, Oil, Power and FMCG in October 2023

Here is a sectoral break-up of the FPI outflows from Indian equities in the month of September 2023, with the colour of flows broken into the first half and second half of the month, to get a granular picture.

FPI Flows  Out of Sectors	H1-Oct 23  ($ million)	H2-Oct 23  ($ million)	Oct-23  ($ million)
Financial Services	-537	-881	-1,418
Information Technology	-185	-207	-392
Oil, Gas & Consumable Fuels	-173	-189	-362
Power	-248	-96	-344
Fast Moving Consumer Goods	-142	-193	-335
Construction	-190	-141	-331
Consumer Durables	-110	-53	-163
Healthcare	-17	-113	-130
Services	33	-125	-92
Chemicals	-66	-23	-89
Media, Entertainment & Publication	-25	-50	-75
Automobile and Auto Components	-27	-46	-73
Realty	12	-72	-60

Data Source: NSDL

During the month of October 2023, the FPI selling was quite rampant and that was hardly surprising, considering the geopolitical risk and the rising US bond yields. Here are the key sectors that saw heavy selling in the month of October 2023.

• Financial services saw the maximum selling of $1.42 billion. That is not surprising. Considering, they are the sector with a third of the FPI weight in India, selling was obvious. But, that misses the point. Banks are under pressure after NII growth faltered in this quarter and the NIMs started to come back to more normalized levels.

   

• IT sector saw heavy selling of $392 million and that was no surprise due to the weak guidance given by most IT companies. IT companies have quietly reduced manpower in a big way, and that has not gone down too well with the markets. This sector has been on the FPI selling list for a long time now.

   

• Oil & Gas saw another $362 million of selling in the month. Selling was seen in Reliance after the quarterly results as also upstream stocks came under pressure on windfall tax concerns. Downstream oil companies are expected to be under stress due to thinning marketing margins for oil marketers.

   

•  After several months of aggressive buying, power sector saw FPI selling of $344 million in October. There are not too many concerns in this sector but the worries are more about stocks having run ahead of normalized valuations. 

   

• Finally, even the FMCG sector saw selling of $335 million in October 2023. Rural sales continue to be weak, although urban sales have picked up much better than expected. Also, the good news still is that FMCG companies have generally seen their EBITDA margins improve in the second quarter on lower commodity costs and better cost management. 

Overall, it was a month when selling dominated. The biggest reasons for selling were macro reasons. Geopolitical risk, US bond yields, rising dollar index are all key risks. They are also the very factors that India has little control over.

Big picture on FPI flows still looks rosy in October 2023

Here is how the FPI flows up to end-October 2023 on a cumulative basis looked like. We are talking flows across equity and debt.

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	(14,576.40)	(191.10)	(14,767.50)	957.11	(13,810.39)
Oct-2023	(28,299.00)	3,751.34	(24,547.66)	6,672.20	(17,875.46)
Nov-2023 #	(3,603.68)	191.59	(3,412.09)	3,216.99	(195.10)
Total for 2023	66,151.77	26,407.59	92,559.36	35,222.97	1,27,782.33
# – October Data is up to 03rd November 2023

Data Source: NSDL (all figures are Rupees in crore). Negative figures in brackets

Let us not miss out some positives on FPI flows. Firstly, the FPIs have net sold $4.50 billion in equities in September and October 2023. However, this is in the backdrop of $21 billion of inflows into equities in the six months prior to that. Secondly, the India growth story is still intact and there is still buying in the domestic stories. It is the global factors like US bond yields, dollar index and geopolitical risk that is hitting markets. Finally, the selling may be happening in secondary market equities, but inflows into IPOs and bonds are robust.

That is why the above table is relevant. In the first 10 months of calendar 2023, FPIs have infused Rs92,559 crore into Indian equities while their total infusion into equity and debt combined was Rs1,27,782 crore. This is after offsetting the selling by FPIs in January, February, September, and October 2023. The net buying in equities in the first 10 months of 2023 has almost offset the selling in 2022. With the US bond yields tapering and the US dollar index normalizing, things should hopefully get better in terms of FPI flows into India.