What FIIs bought and sold in Indian equities in December 2023?

4 Jan 2024 , 10:09 AM

Record month of FPI flows in December 2023

The signs of a turnaround in FPI sentiments were visible in the last week of November itself, but the real impact was only felt in the month of December. For the month of December 2023 alone, FPIs infused close to $8 billion into equity and if you added debt then the total flows in December 2023 were more than $10 billion. FPI AUM is now at a record high of $737 billion and this is well above the previous October 2021 peak of $667 billion. The FPI AUM struggled for nearly 2 years to get back to that mark and in the month of November 2023, it just crossed that mark. However, in December 2023, the FPI AUM has taken a decisive lead. The FPI inflows into equity in December 2023 appears to have more than compensated for the FPI selling witnessed in the months of September and October

What triggered the surge in FPI flows in December 2023?

There were several reasons that triggered a turnaround in FPI sentiments in December; as it built on the gains seen in the last week of November 2023. Several factors added up.

• The first reason was political in nature. The ruling NDA swept the key state elections of Madhya Pradesh, Rajasthan, and Chhattisgarh. Apart from Madhya Pradesh, the other two states were expected to be a close contest. However, the ruling NDA, not only won these states, but did so with comfortable margins too. For the FPIs, this gives them reassurance that the current reforms process would continue, especially in the light of the fact that central elections will come up in the middle of 2024.

   

• Indian showed off the Goldilocks effect in full bloom. Inflation, despite bouncing to 5.5% in November remains well under control. The gratifying feature about inflation in India has been the sharp lowering of core inflation. In fact, core inflation is the structural inflation that is harder to control. While India may still be far from the RBI long-term target of 4% inflation, the journey looks decisively lower.

   

• If restrained inflation was one side of the story, the other side was frenetic growth in GDP and IIP. For the second quarter of FY24, India reported GDP growth of 7.6%, coming on top of 7.8% GDP growth in the first quarter. This led the RBI to also upgrade its growth forecast for FY24 by 50 bps from 6.5% to 7.0%. This means that even in this year, India is likely to remain the fastest growing large economy. That only boosts India’s chances to get to the $5 trillion GDP mark faster.

   

• It was not just the domestic data but even the global data was very positive. US GDP growth for the third quarter ended September came in at 4.9% and it means that the full year GDP would be closer to 2.6%, even assuming a slowdown in Q4. In addition, the PCE inflation, which the Fed uses for its rate decisions, has now fallen to 2.6%, just 60 bps shy of the Fed long term inflation target of 2%. This has urged even the Fed to change tack to a more dovish stance in its December monetary policy, with commitment of 7 rate cuts by the year 2025. That led to a sharp fall in the US bond yields and the US dollar index, boosting the fortunes of the Indian markets too.

   

• Finally, the IPO market came good in the year 2023. A total of 58 IPOs collected over Rs53,000 crore via IPOs. What is more gratifying is that only 4 out of these 58 IPOs gave negative returns on their IPO issue price while the remaining 54 IPOs gave positive returns. In addition, the average subscription of all IPOs combined in the year was around 37 times, something that reveals a huge market appetite. That also enthused the FPIs to a great extent.

Above all, FPIs are also betting on the sustenance of the reforms process and the rather hackneyed reality that India could move to become a $5 trillion economy over the next 7 years. That is a huge fundamental bet on the Indian economy for the FPIs.

FPI AUC scales to record $738 billion in Dec-23 

Assets under custody (AUC) is the closing market value of all equities held by FPIs. The AUC is a function of flows and also the movements in major stock market indices. In December, it was substantially a function of both; FPI flows and value accretion of the portfolio. In fact, the FPI AUC is up a whopping 17.4% in just the last 2 months between the end of October and the end of December 2023. Why this number is relevant is that it is now substantially higher than the earlier peak of $667 billion achieved on FPI AUC in October 2021. After a gap of over 2 years, the FPI AUC has once again scaled up, thanks to the index rally. The table below captures the top sectors in terms of FPI AUC as of December versus November 2023.

Industry  Group	FPI AUC (Dec 2023) ($ billion)	FPI AUC (Nov 2023) ($ billion)
Financials (BFSI)	234.28	216.15
Information Technology (IT) Services	72.19	65.80
Oil & Gas	62.48	56.70
Fast Moving Consumer Goods (FMCG)	50.47	46.63
Automobiles and Auto Components	49.45	46.14
Healthcare and Pharmaceuticals	40.17	38.08
Capital Goods	32.55	29.79
Power (generation and transmission)	29.92	24.20
Consumer Durables	24.46	22.90
Metals and Mining	22.64	19.37
Consumer Services	22.03	20.49
Telecommunications	19.83	18.96
Construction	16.59	14.50
Cement	14.15	12.18
Services	13.28	11.47
Realty	13.01	11.90
Chemicals	12.46	11.69
Top 17 Sectors	729.98	666.93
Other 6 sectors	7.80	7.74
Total FPI AUC	737.78	674.67

Data Source: NSDL

The table above captures the top 17 sectors with AUC above $10 billion as of the close of December 2023. NSDL has 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 98.94% of total FPI AUC of $737.78 billion. The FPI AUC has scaled a new historic peak in this month of December 2023, which is not surprising considering that Nifty and Sensex are at life-time highs. Let us turn to the specific sectors in terms of AUC and how they have moved over previous month.

At $234.28 billion, it is the BFSI sector that has continued to dominate the AUC stakes. The AUC of financials accounts for nearly 32% of the total AUC of FPIs. That roughly corresponds with the share that these financials have in the Nifty index composition. The other key sectors by AUC viz. IT, Oil, FMCG, healthcare, and capital goods have all seen AUC getting a boost in December 2023. The big gainers in terms of accretion in AUC included sectors like financials, IT, capital goods, and power. Let us turn to the sectors where FPIs were active.

FPI buying in December 2023 driven by BFSI sector

In a month when the FPI action was decisively positive, there would be substantially larger number of sectors where FPIs were net buyers, than where they were net sellers. Here is a sectoral break-up of the positive net FPI inflows into Indian equities in December 2023, with the colour of flows broken into first half and second half of the month.

FPI Flows  Into Sectors	H1-Dec 23  ($ million)	H2-Dec 23  ($ million)	Dec-23  ($ million)
Financial Services (BFSI)	2,752	755	3,507
Others (IPOs)	492	198	690
Information Technology	171	453	624
Capital Goods	359	254	613
Healthcare	415	27	442
Cement	241	200	441
Automobiles and Ancillaries	398	40	438
Consumer Services	643	65	408

Data Source: NSDL

The BFSI sector accounted for nearly 45% of the total flows in the month at $3.51 billion. Among the other sectors that got positive inflows were IT, capital goods, healthcare cement and auto. The others list typically refers to the IPO market where FPI flows have been quite robust in the last few weeks. There were a mix of active and passive flows in December.

FPI selling was very limited in December 2023

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

FPI Flows  Out of Sectors	H1-Dec 23  ($ million)	H2-Dec 23  ($ million)	Dec-23  ($ million)
Media Entertainment	-146	-4	-150
Realty	-12	-68	-80
Oil & Gas	-475	+411	-64

Data Source: NSDL

Actually, not much is seen on the selling front, which is not surprising in a month when the FPIs infused $8 billion into the equity market. Media and entertainment did see selling, but the media sector in India is still dominated by Zee. Hence any action of FPIs pertaining to the one stock tends to get reflected very strongly on the sector. Realty and oil & gas also saw subdued selling, but that looked more like profit booking at higher levels. One reason could also be that FPIs were reducing their trading positions towards end of the month of December 2023 as they preferred to go light into 2024, especially in counters that had a penchant for volatility.

It was a month dominated by FPI buying and that is the reason, the selling sectors are few and far between. However, the markets must be prepared that FPIs could allocate out of India as other emerging markets in Asia are relatively more attractive compared to India in valuation terms. For now, the FPIs are firmly on the side of India and the heavyweight sectors are benefiting the most from that trend.

Big picture on FPI flows for December 2023

Here is how the FPI flows up to end-December 2023 on a cumulative basis looked like. We are talking flows across IPOs, secondary equities, hybrids, 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	(368.40)	9,369.18	9,000.78	15,545.63	24,546.41
Dec-2023	58,372.70	7,761.96	66,134.66	18,402.77	84,537.43
Flows for 2023 ₹	1,27,759.75	43,347.14	1,71,106.89	65,954.38	2,37,061.27
Flows for 2023 $	15.50	5.24	20.74	7.96	28.70

Data Source: NSDL (₹ flows are in crore and $ flows are in billions)

Here are some key takeaways from the FPI summary flow numbers.

1. For the year 2023, the FPIs infused $20.74 billion into Indian equities. Out of that $15.50 billion came into secondary markets while $5.24 billion came into the IPO markets. In addition, the FPIs infused $7.96 billion into debt. This takes the total FPI flows into Indian markets for the year 2023 to $28.70 billion.

    

2. The IPO inflows in equity secondary markets in 2023 at Rs1.28 trillion is lower than the secondary market outflows of Rs1.46 trillion in 2022. However, this is more than compensated by the sharply higher flows into IPO markets in 2023. As a result, overall equity flows of FPIs into Indian equities in 2023 stood at Rs1.71 trillion compared to outflo09w of Rs1.21 trillion in year 2022.

    

3. Debt flows in 2023 also marked a sharp turnaround from negative flows to positive flows as the yield advantage kept diminishing for the developed markets. If you see overall FPI flows, then the inflow of Rs2.37 trillion in 2023 is sharply higher than the outflow of Rs1.33 trillion in the year 2022.

    

Between the end of November 2023 and December 2023, the FPI AUC moved up from $675 billion to $737 billion. This $62 billion accretion in FPI AUC can be explained by $21 billion of equity inflows and the balance $41 billion from the rally in the indices to new highs in the month of December 2023.