What FIIs bought and sold in Indian equities in January 2024?

6 Feb 2024 , 11:16 AM

FPIs back on selling mode in January 2024

The month of December 2023 had seen record FPI inflows of more than $9 billion into equities. However, in the month of January 2024, the FPIs were back to being sellers. Interestingly, the FPIs were net buyers in the first half of January to the tune of $417 million. However, the second half of January saw FPI selling of $3,514 million resulting in net selling in equities to the tune of $3,097 million for the month of January 2024. One can argue that the selling of $3.1 billion in January is small compared to the buying of over $9 billion in December 2023, but that is selling nevertheless. FPIs were net sellers for most days in the second half of January. While this can partially be attributed to global data flows, the domestic quarterly results also played a part in this sell-off. In fact, the quarterly growth in revenues and profits was among the lowest in the last 12 quarters since the markets bounced back from the COVID lows. Let us look at specific reasons for the sell-off.

What triggered the FPI sell-off in January 2024?

There were several reasons that triggered a sell-off in equities in January 2024, especially the second half of the month.

• There was some caution ahead of the Union Budget on February 01, 2024. Markets were expecting a budget that would veer towards populism considering that India was just about 4 months away from elections and about 6 months from the full budget. Eventually, the interim budget turned to be a lot more reformist and fiscally prudent than imagined, but that is a different story altogether.

   

• There were also some concerns ahead of the Fed policy statement which was announced on January 31, 2024. The street was expecting that, despite the optimism of the CME Fedwatch, the Fed would continue to hold a hawkish stance. Of course, that is what eventually happened. The immediate concern was that the bond yields in the US were rising sharply on expectations that the Fed would delay rate cuts. That led to some aggressive selling by FPIs; in search of better yields.

   

• Quarterly results of Indian companies recorded one of the slowest rates of top line and bottom line growth in the last 12 quarters and that also impacted the sentiments of the FPIs. Sectors like banking, FMCG and autos saw some pressure in terms of demand, especially rural demand. Two of the heavy weight sectors viz. banking and FMCG remained under pressure as FPIs lightened positions in these sectors.

   

• The one sector that saw the bulk of the selling in January 2024 was banking and HDFC Bank was the one reason for the $3.6 billion of selling in BFSI stocks. The sell-off started immediately after the quarterly results announcement. HDFC Bank reported a huge growth dichotomy with the deposit growth struggling to keep pace with the credit growth. However, the real concern was the sharp fall in net interest margins (NIM) to 3.4%, one of its lowest levels in recent years. The NIM of HDFC Bank is a full 100 bps below that of ICICI Bank and that led to aggressive selling in the HDFC Bank stock.

   

• Not to forget, there is the political uncertainty and the past experience has been that the VIX spikes sharply during this period. That just complicates the investing process for the FPIs and in this period, they prefer to use derivatives to hedge their risk. That is one of the reasons the FPIs remain on the sidelines till the election outcome is known; or at least, till the first pre-election surveys are out. That is still some time away.

On a more fundamental note, the FPIs are quite confident of India touching $5 trillion GDP over the next 5-6 years. That is going to unleash a lot of big opportunities for growth and consumption in India.

FPI AUC scales to record $746 billion in January 2024 

Assets under custody (AUC) is the closing market value of equities held by FPIs. The AUC number, therefore, depends on the flows and also the movements in major stock market indices. In January, it was a case of the index appreciation getting the better of the negative FPI flows. In fact, the FPI AUC is up a whopping 19% in the last 3 months between the end of October and the end of January 2024. Why this number is relevant is that it is now substantially higher than the earlier peak of $667 billion (in fact a good 11.84% higher) compared to the FPI AUC achieved in October 2021. Here is an MOM comparison.

Industry  Group	FPI AUC (Jan 2024) ($ billion)	FPI AUC (Dec 2023) ($ billion)
Financials (BFSI)	221.72	234.28
Information Technology (IT) Services	75.39	72.19
Oil & Gas	69.77	62.48
Automobiles and Auto Components	50.64	49.45
Fast Moving Consumer Goods (FMCG)	48.98	50.47
Healthcare and Pharmaceuticals	43.20	40.17
Capital Goods	33.66	32.55
Power (generation and transmission)	32.51	29.92
Consumer Durables	23.53	24.46
Consumer Services	22.89	22.03
Metals and Mining	22.61	22.64
Telecommunications	22.44	19.83
Construction	16.93	16.59
Cement	14.24	14.15
Realty	14.23	13.01
Services	14.13	13.28
Chemicals	11.67	12.46
Top 17 Sectors	738.53	729.98
Other 6 sectors	7.67	7.80
Total FPI AUC	746.20	737.78

Data Source: NSDL

The table above captures the top 17 sectors with AUC above $10 billion as of the close of January 2024. 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 98.97% of total FPI AUC of $746.20 billion. The FPI AUC has scaled a new historic peak in January 2024, which is not surprising considering that Nifty and Sensex are near their life-time highs. Let us turn to the specific sectors in terms of AUC and how they have moved over previous month.

At $221.72 billion, it is the BFSI sector that has continued to dominate the AUC stakes. The AUC of financials accounts for nearly 29.7% of the total AUC of FPIs. That is about 300 bps lower than last month and that can be explained by the sharp sell-off in banks by the FPIs in January 2024. The other key sectors by AUC viz. IT, Oil, automobiles, healthcare, capital goods, and power have all seen AUC getting a boost in January 2024. These were the sectors that saw major AUC accretion. At the same time, BFSI and FMCG were the two sectors that saw depletion in AUC over the previous month.

FPI buying in January 2024 driven by IT, Oil, Telecom, Power

In a month when the FPI action was decisively on the sell side overall, there a number of sectors where FPIs were net buyers. That is a good sign that FPIs are being more sector specific and is not an India-sell signal. Here is a sectoral break-up of the positive net FPI inflows into Indian equities in January 2024, divided into the two halves of the month.

FPI Flows  Into Sectors	H1-Jan-24  ($ million)	H2-Jan-24 ($ million)	Jan-24 ($ million)
Information Technology (IT)	-59	599	540
Oil & Gas	176	242	418
Telecommunications	74	245	319
Power	126	183	309
Others	15	127	142
Consumer Services	122	-12	110
Capital Goods	-37	120	83

Data Source: NSDL

The net buying was subdued and spread across sectors. However, the net buying by FPIs in IT is an indication that the worst may be over for the sector. Oil & Gas has also been seeing FPI interest due to oil prices stabilizing globally. Telecom has been largely about Bharti, although FPIs are also buying Reliance as a telecom proxy. Power has been getting a lot of FPI attention amidst better economics and a bigger shift towards renewables.

FPI selling was dominated by BFSI in January 2024

Here is a sectoral break-up of FPI net outflows from Indian equities in the month of January 2024, with the colour of flows broken up into the first half and second half of the month.

FPI Flows  Out of Sectors	H1-Jan-24  ($ million)	H2-Jan-24 ($ million)	Jan-24 ($ million)
Financial Services	151	-3,763	-3,612
Fast Moving Consumer Goods (FMCG)	-76	-243	-319
Automobiles and Components	-197	-53	-250
Media and Entertainment	-122	-88	-210
Metals and Mining	39	-235	-196
Chemicals	-11	-125	-136
Consumer Durables	47	-174	-127

Data Source: NSDL

Of course, the big story was about FPI selling in the banking space as nearly $3.6 billion of selling happened in the BFSI stocks. Most of the selling was concentrated in the second half and it was specifically after the HDFC Bank results. India’s most valuable bank saw a massive sell-off after HDFC Bank reported deposit growth much slower than credit growth. Also, the NIMs at 3.4% were disappointing and a full 100 bps below that of ICICI Bank. 

However, there were also other sectors that saw selling, albeit to a lesser extent. FMCG saw selling due to concerns over weak rural sales. Most FMCG companies in Q3 managed to growth profit, but sales were disappointing. Autos also selling for the same reason of rural weakness. The selling in Media was dominated by Zee, but that was more due to the collapse of the merger between Zee and Sony and may not be reflective of a sectoral trend.

Big picture on FPI flows over last 3 years

Here is a combined picture of FPI net flows across the last 3 years viz. 2022, 2023 and the first month of 2024. The table captures the net flows into equity and debt & hybrids separately, to give a picture of which way the wind is blowing.

Calendar  Month	FPI Flows Secondary	FPI Flows Primary	FPI Flows Equity	FPI Flows Debt/Hybrid	Overall FPI Flows
Calendar 2022 (₹ cr)	(146,048.38)	24,608.94	(121,439.44)	(11,375.78)	(132,815.22)
Calendar 2023 (₹ cr)	1,27,759.75	43,347.14	1,71,106.89	65,954.38	2,37,061.27
Jan-2024	(28,863.89)	3,120.34	(25,743.55)	19,150.21	(6,593.34)
Feb-2024 #	2,021.63	31.16	2,052.79	5,046.60	7,099.39
Total for 2024 (₹ cr)	(26,842.26)	3,151.50	(23,690.76)	24,196.81	506.05
For 2024 ($ million)	(3,228.68)	379.33	(2,849.35)	2,913.12	63.77
# – Recent Data is up to February 02, 2024

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

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

1. For the last full calendar year 2023, the total net inflows into equities stood at Rs1.71 trillion. This comprised of secondary market inflows of Rs1.28 trillion and primary market (IPO) inflows of 0.43 trillion. If you look at the net FPI flows into equity in 2023 at Rs1.71 trillion, it more than offsets the net FPI outflow from equities of Rs1.21 trillion in the year 2022.

    

2. However, what is interesting is that the secondary market outflows in 2022 at Rs1.46 trillion was much higher than the secondary market inflows of Rs1.28 trillion in 2023. The saving grace in both the years was the sharp inflows through IPOs, which ensured that on a net basis, the equity inflows of 2023, substantially outweighed the equity outflows of year 2022.

    

3. Let us turn to debt flows. In the full year 2023, the debt inflows of FPIs stood at Rs65,954 crore, which more than offset the debt market outflows of 2022 at Rs11,376 crore. Debt flows continue to be very robust in the year 2024, with FPIs having infused nearly Rs24,197 crore in just the first month of 2024. Clearly, the inclusion of Indian bonds in the global JP Morgan and Bloomberg indices is leading to a lot of preparatory buying in Indian bonds by the FPIs.

There is one question that arises; does the AUC of $746 billion give substantial influence to FPIs in deciding the course of Indian markets. The answer is yes and no. AUC of $746 million is substantial so influence will be there. However, today Indian mutual funds have AUM of $650 billion and LIC has about $640 billion. Even if you do not count domestic insurance and the PF equity money, there is still a log of domestic liquidity to offset FPI flows.