What FIIs bought and sold in India in September 2023?

9 Oct 2023 , 07:01 AM

FPI selling came back in September 2023 after a long gap of 6 months. The last time, FPIs were net sellers in equities was back in February 2023. In the 6 months between March 2023 and August 2023, the 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. The FPI selling in September was not entirely unexpected. The pressure of FPI selling was visible in August itself. Of course, the FPIs ended the month of August being net buyers in equities to the tune of $1.48 billion. In comparison, the net FPI selling in equities of $1.78 billion looks fairly large and substantial in the month of September. It is not just that the FPIs were selling on a net basis, but there were selling on most of the trading days during the month and that has impacted sentiments to a greater extent. 

What triggered the sell-off by FPIs in September 2023?

There were several reasons that triggered the FPI selling in September, but we can enumerate some key factors as under.

• Global hawkishness continues to haunt FPI flows, especially the kind of persistent hawkishness that the US Fed has shown. That has an impact on the comparative real interest equations in India and that has led to FPI selling.

   

• FPIs were also selling due to high crude oil prices. Brent crude had crossed $94/bbl, before retreating. However, the supply side of oil continues to call the shots. So higher oil prices appear to be the norm for now.

   

• The other factor that triggered FPI selling in September was the sharp spike in US bond yields. At around 4.8% the US bond yields are at a 17-year high. That is likely to put pressure on India borrowing rates and also the equity valuations.

   

• There is the issue of the sharp spike in the dollar index (DXY), which his now above 107; only the third occasion in the last 40 years. Clearly, the dollar looks to strengthen and that means lower dollar returns for FPIs and higher imported inflation for India.

   

• Finally, there were also concerns that the Q2FY24 results could disappoint on multiple fronts like IT sector revival, metal sector profits as well as narrowing NIMs for banks. This has led to all-round selling by FPIs. 

However, September 2023 had its share of positive vibes too. Current account deficit (CAD) for the first quarter at 1.1% was lower than expected while core sector growth has averaged over 9% in the last 3 months. Fiscal deficit expansion has slowed and it looks very likely that the central fiscal deficit will be defended at the budgeted 5.9%. Let us now turn to how the assets under custody (AUC) of FPI assets shifted in September 2023.

FPI AUC crosses $650 billion in September 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 August 2023 and September 2023, the FPI AUC has risen by 1.04%. However, AUC is still short of the peak of $667 billion reported in October 2021, which shows that FPIs are still evaluating India as an investment option. However, the bounce in AUC is appreciable. From an AUC peak of $667 billion in October 2021, the FPI AUC fell to a low of $523 billion in June 2022. At $651 billion as of the close of September 2023, FPI AUC is just $16 billion shy of the previous peak. Here is the MOM shift.

Industry  Group	FPI AUC (Sep 2023) ($ billion)	FPI AUC (Aug 2023) ($ billion)
Financials (BFSI)	213.60	212.08
Information Technology (IT) Services	64.27	62.92
Oil & Gas	55.57	56.65
Fast Moving Consumer Goods (FMCG)	45.57	45.58
Automobiles and Auto Components	42.92	41.88
Healthcare and Pharmaceuticals	35.73	35.08
Capital Goods	27.06	26.91
Power (generation and transmission)	23.52	22.66
Consumer Durables	22.50	22.75
Metals and Mining	19.18	19.27
Consumer Services	18.07	17.59
Telecommunications	17.56	16.37
Construction	14.35	13.35
Chemicals	11.56	11.99
Cement	11.40	11.32
Services	11.07	11.50
Top 16 Sectors	633.92	627.89
Other 7 sectors	17.27	16.58
Total FPI AUC	651.19	644.47

Data Source: NSDL

The table above captures the top 16 sectors with AUC above $10 billion as of the close of September 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 97.35% of total FPI AUC of $651.19 billion. The FPI AUC is up despite the selling in the month and that is due to the sharp rally in the markets during the month of September. How did the AUC shift between August and September 2023 look like? 

At $213.60 billion, it is the BFSI sector that has continued to dominate the AUC stakes. However, the accretion in value during the month of September came more from NBFCs and insurance companies. With bank NIMs appearing to peak and the deluge of flows into HDFC Bank over, the action has shifted to the non-banking financials. While oil AUC continued to drag, it was the IT sector that saw a spike in AUC over last month. Among other key AUC gainers were power, capital goods, automobiles, and telecom. Let us not turn to what the FPIs were betting on and against in the month of September 2023.

Capital goods, consumer services, BFSI, and IT dominate FPI inflows

Here is a sectoral break-up of the FPI inflows into Indian equities in the month of September 2023, with the colour of flows broken into the first half and second half of the month.

FPI Flows  Into Sectors	H1-Sep 23 ($million)	H2-Sep 23 ($million)	Sep-23 ($million)
Capital Goods	393	221	614
Consumer Services	202	211	413
Financial Services	772	-427	345
Information Technology	173	54	227
Others	52	122	174
Realty	95	-3	92
Automobile and Components	-68	145	77
Healthcare	49	-16	33

Data Source: NSDL

Let us first focus on sectors getting positive flows from FPIs in September 2023. Once again, there are no two opinions about it. It was a bet on the revival of the capital cycle. Capital goods attracted FPI inflows of $614 million with the flows evenly distributed in both halves of the month. This is the fourth month in succession that FPIs have been extremely bullish about the capital goods as a sector. It was followed closely by consumer services getting $413 million and financial services getting $345 million of PFI inflows in September 2023. On the financial services, the month saw heavy buying in the first half but heavy selling in the second half. While the buying was focused on select banks, NBFCs and insurers; the selling in the second half of the month was largely focused on the banking stocks. It sector was the surprise package that got FPI inflows of $227 million during the month of October. While it cannot be called a long-only bet on the IT sector due to the negative sentiments it looks more like a passive inflow into IT stock majors due to the reallocation needs of passive funds. Many of the passive funds had been pushed underweight on IT stocks after the sharp correction during the current calendar year.

FPIs sellers in September in power, oil, metals and FMCG

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-Sep 23 ($million)	H2-Sep 23 ($million)	Sep-23 ($million)
Power	-500	-672	-1,172
Oil, Gas & Consumable Fuels	-324	-306	-630
Metals & Mining	-549	-60	-609
Services	-446	-84	-530
Construction	47	-300	-253
Fast Moving Consumer Goods	-78	-137	-215
Construction Materials	-107	-49	-156
Chemicals	-106	-4	-110
Telecommunication	-145	89	-56
Media, Entertainment & Publication	-30	-18	-48

Data Source: NSDL

It was the power sector that saw the bulk of the FPI outflows in the month of September at $1,172 million. However, this billion dollar outflows can largely be attributed to block deals in some of the power stocks, including some in the Adani group. This may not be too indicative of the FPI sentiments, since structurally, the FPIs continue to be extremely positive on capital goods and power, in that order. The other sector that saw considerable selling was the oil & gas sector. With rising crude prices there were fears that OMCs would again descend into losses. The hike in the windfall tax on oil also impacted the upstream stocks leading to overall selling in oil stocks across the board. 

The third sector that saw considerable selling in the month was the metals and mining space and here again there has been a lot of FPI selling in the stock of Vedanta. FPIs have been sceptical about the company splitting its business into 6 distinct companies as it could impair the gains of consolidation that Vedanta had always advocated. FPI selling on Vedanta was apparent and the stock also touched a 52-week low in the month. In addition, S&P Global downgrading Vedanta Resources PLC also impacted sentiments around metal stocks. The other sector that saw sustained selling was FMCG, where there are now genuine concerns over high crude oil prices, high food inflation and weak recovery in rural demand.

Let us not miss the big picture of FPI flows in September 2023

Here is how the FPI flows up to September 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)
Total for 2023	98,054.45	22,464.66	1,20,519.11	25,333.78	1,45,852.89
# – September Data is up to month-end

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

Discrete focus on parts of the data can be misleading, and that applies to FPI flows too. That is the risk if we just look at the September FPI flow data without looking at the context. The context is the FPI flows for 2023 as a whole, and that changes our perception substantially. The above table sums up the story of FPI flows in September 2023 in particular and for calendar year 2023 overall. In the first 9 months of calendar 2023, FPIs have infused Rs1,20,519 crore into Indian equities while their total infusion into equity and debt combined was Rs1,45,853 crore. 

What is more interesting is that, this is after offsetting the heavy selling by FPIs in January, February, and September 2023. The net buying in equities in the first 9 months of 2023 had almost offset the selling in 2022. The icing on the cake is that FPIs have infused $3 billion into debt in 2023. If you add these up, the macro picture looks quite encouraging.