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

6 Mar 2024 , 09:29 AM

FPIs marginal net buyers in equities in February 2024

FPI flows had slowed considerably after the record $9 Billion infusion in December 2023. In January 2024, FPIs were net sellers in equities to the tune of $417 Million, but this turned around to FPIs being marginal net buyers to the tune of $182 Million in February 2024. The first half of February saw net FPI selling of $596 Million while the second half of February saw net FPI buying of $778 Million, resulting in net inflows of $182 Million for the month. If you break up this February 2024 net inflow of $182 Million, it entailed outflows from secondary markets of $385 Million and an inflow of $567 Million into IPO markets. 

In short it was the IPO market that saved the day for FPI equity flows in February 2024, a trend observed in January also. But, the big takeaway from the February data was the vas divergence in the sectoral FPI flows. For instance, six sectors saw combined net FPI outflows of $3.36 Billion, while eight sectors saw combined net inflows of $3.67 Billion. The moral of the story was that the overall monthly figure for February may be quite misleading, as the real story was in the sectoral divergences in FPI flows.

Key FPI flow influencers in February 2024

There were several factors that had a deep influence on FPI flows in February 2024. To be fair, many of the data points did come very late in the month, but a lot of FPI flows were built on expectations around these macro variables. Here is a quick dekko.

1. MOSPI announced India’s GDP data for Q3 and the second advance estimate for full year GDP growth for FY24. To say the least, it was a big positive surprise. Q3 GDP came in sharply higher at 8.4%. This is substantially better than the consensus estimates of 6.7% GDP growth and even the most optimistic estimate of 7.2%. While agricultural growth faltered, industry and mining more than made up for it. Services were robust, although some of the contact intensive sectors did see a slowdown. But, the bigger takeaway was the full year GDP growth estimate of 7.6%. which is a full 60 bps better than RBI estimates. With first 3 quarter GDP growth at above 8%, this pre-supposes Q4 growth of just 5.9%, which is not practical. We could see full year GDP close to 8% in FY24. 

    

2. The last week of February also saw the core sector growth being put out at 3.6% for January 2024. It may look optically lower, but this is more due to a temporary slowdown in government spending to ensure that fiscal deficit stays within target. One must not forget that high base had an impact on the core sector growth. Core infrastructure spaces like steel and cement continued to be robust with only refinery products under stress. Moreover, if you go by December 2023 revisions, even January data could be revised substantially higher, once full data is factored in. 

    

3. The week also saw the fiscal deficit update for FY24 as of the close of January 2024. At 63.6% of full year fiscal deficit target, the Indian economy looks to be well on target, or even below it in FY24. The fiscal deficit target of 5.8% for FY24 5.1% for FY25 looks a lore more achievable and realistic now.

    

4. Finally, two global data points also influenced FPI flows in the month. US Q4 GDP data came in almost at par at 3.2% as per the second estimates. This makes full year GDP growth for 2023 at above 2.5% very real, hinting at a clear soft landing. In addition, the PCE inflation (the key input for Fed rate setting), has come in 20 bps lower at 2.4%. Now the PCE inflation is just 40 bps short of the 2% target set by the Fed. Although there is no signal on the rate cut time table, this surely paves the way for rate cuts. 

For the FPIs, the data flows from India and the US were positive, although there were some concerns over the UK and Japan officially slipping into recession (2 consecutive quarters of negative GDP growth). But, the real challenge for FPIs today, is the political uncertainty ahead of the general elections in May 2024.

FPI AUC scales to record $763 Billion in February 2024 

Assets under custody (AUC) is the closing market value of equities held by FPIs. The AUC number is a function of the flows and also the movements in major stock market indices. In February, it was a case of the index appreciation getting the better of flat FPI flows. In fact, the FPI AUC is up an impressive 22% in the last 4 months between the end of October 2023 and the end of February 2024. This AUC is also a good 14.3% higher than the previous peak of $667 Billion achieved in October 2021. Here is an MOM comparison.

Industry  Group	FPI AUC (Feb 2024) ($ Billion)	FPI AUC (Jan 2024) ($ Billion)
Financials (BFSI)	219.70	221.72
Information Technology (IT) Services	78.51	75.39
Oil & Gas	72.46	69.77
Automobiles and Auto Components	54.48	50.64
Fast Moving Consumer Goods (FMCG)	48.48	48.98
Healthcare and Pharmaceuticals	45.39	43.20
Capital Goods	35.28	33.66
Power (generation and transmission)	34.13	32.51
Consumer Services	26.32	22.89
Consumer Durables	23.74	23.53
Metals and Mining	22.51	22.61
Telecommunications	21.50	22.44
Construction	16.46	16.93
Services	15.61	14.13
Realty	15.44	14.23
Cement	14.01	14.24
Chemicals	11.54	11.67
Top 17 Sectors	755.56	738.53
Other 6 sectors	7.51	7.67
Total FPI AUC	763.07	746.20

Data Source: NSDL

The table above captures the top 17 sectors with FPI AUC above $10 Billion as of the close of February 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 99.02% of total FPI AUC of $763.07 Billion. The FPI AUC has scaled a new historic peak in February 2024, and is now a good 14.3% above the previous peak achieved in October 2021. However, this is not surprising as the Nifty and Sensex are at life-time highs. 

At $219.7 Billion, it is the BFSI sector that has continued to dominate the AUC stakes, despite some heavy selling in the last 2 months. The AUC of financials accounts for nearly 28.8% of the total AUC of FPIs. That is about 400 bps lower in the last 2 months and that is due to the sharp FPI sell-off in banks. The other key sectors by AUC viz. IT, Oil, automobiles, healthcare, capital goods, and power have all seen an AUC boost in February 2024. However, BFSI, FMCG and metals AUC pressure in February 2024.

February FPI buying driven by Consumer Services, Auto, Healthcare

As we said earlier, the overall FPI net inflow of $182 Million was relatively misleading as it glossed over the issue of vast divergence in FPI buying and selling. Here is a sectoral break-up of the positive net FPI inflows into Indian equities in February 2024.

FPI Flows  Into Sectors	H1-Feb-24  ($ Million)	H2-Feb-24 ($ Million)	Feb-24 ($ Million)
Consumer Services	366	542	908
Automobiles	306	362	668
Healthcare	507	119	626
Capital Goods	111	360	471
Services	238	185	423
Infotech	390	-126	264
Realty	69	103	172
Consumer Durables	22	112	134

Data Source: NSDL

The top 5 sectors that saw net inflows from FPIs; Consumer Services, Auto, Healthcare, Capital Goods and Services saw robust inflows in the first and second half of February. Consumer Services flows were largely IPO driven, while autos attracted a lot of buying interest on the back of interest rate cut expectations. Healthcare continues to see defensive allocations, while capital goods remain a big bet on the revival of capital investment cycle.

FPI selling dominated by BFSI, Construction, FMCG in February

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

FPI Flows  Out of Sectors	H1-Feb-24  ($ Million)	H2-Feb-24 ($ Million)	Feb-24 ($ Million)
Financial Services	-908	-295	-1,203
Construction	-512	-29	-541
FMCG Sector	-363	-176	-539
Telecommunications	-454	-20	-474
Oil & gas	125	-552	-427
Power	-349	169	-180
Chemicals	-95	0	-95

Data Source: NSDL

After aggressive net selling of $3.6 Billion in financials last month, the FPIs sold another $1.2 Billion in February 2024. Most of the selling was concentrated in the first half of the month with the second half seeing moderation of FPI outflows. The trigger for the sell-off in banks came with the HDFC Bank results, which disappointed for Q3-FY24. This month, Jefferies downgraded Indian banks and that also had an impact on FPI flows into banking.

However, there were also other sectors that saw selling, albeit to a lesser extent. Construction saw selling as government capex has slowed down. FMCG saw selling due to concerns over weak rural sales, despite profit growth staying robust. Even telecom and oil & gas saw some heavy selling as exhaustion set in at higher levels in the market in February. 

Big picture of FPI flows over last 3 years

Here is a combined picture of FPI net flows across the last 3 years viz. 2022, 2023 and up to the start of March 2024. The table captures the net flows into equity and debt & hybrids separately, to give an overall picture of FPI flows.

Calendar  Month	FPI Flows Secondary	FPI Flows Primary	FPI Flows Equity	FPI Flows Debt/Hybrid	Overall FPI Flows
Calendar 2022 (₹ Crore)	(146,048.38)	24,608.94	(121,439.44)	(11,375.78)	(132,815.22)
Calendar 2023 (₹ Crore)	1,27,759.75	43,347.14	1,71,106.89	65,954.38	2,37,061.27
Jan-2024 (₹ Crore)	(28,863.89)	3,120.34	(25,743.55)	19,150.21	(6,593.34)
Feb-2024 (₹ Crore)	(3,194.72)	4,733.60	1,538.88	30,277.95	31,816.83
Mar-2024 # (₹ Crore)	4,181.55	19.76	4,201.31	(418.34)	3,782.97
Total for 2024 (₹ Crore)	(27,877.06)	7,873.70	(20,003.36)	49,009.82	29,006.46
For 2024 ($ Million)	(3,352.51)	948.61	(2,403.90)	5,902.90	3,499.00
# – Recent Data is up to March 01, 2024

Data Source: NSDL (Negative figures in brackets)

Here are some key takeaways from the summary of FPI flow numbers for the calendar year 2024 so far.

1. For the last full calendar year 2023, the total net inflows into equities stood at ₹1.71 Trillion. This comprised of secondary market inflows of ₹1.28 Trillion and primary market (IPO) inflows of 0.43 Trillion. Interestingly, this net FPI flows into equity in 2023 at ₹1.71 Trillion more than offsets the net FPI outflow from equities of ₹1.21 Trillion in the year 2022. However, IPO flows were robust in both the years; 2022 and 2023.

    

2. However, what is interesting is that the secondary market outflows in 2022 at ₹1.46 Trillion was much higher than the secondary market inflows of ₹1.28 Trillion in 2023. The saving grace in both the years was the inflows through IPOs, which ensured that on a net basis, the equity inflows of 2023, substantially outweighed the equity outflows of year 2022. At the end of the day, they are still equity flows and so it would look more like FPIs reallocating their capital from the secondary markets to the IPO markets.

    

3. Let us turn to debt flows. In the full year 2023, the debt inflows of FPIs stood at ₹65,954 Crore, which more than offset the debt market outflows of 2022 at ₹11,376 Crore. Debt flows continue to be strong in 2024, with FPIs having infused nearly ₹49,010 Crore in just the first two months of 2024. A lot of these debt flows can be attributed to preparatory buying in Indian debt paper ahead of their inclusion in the JP Morgan and Bloomberg debt indices, which are slated to trigger passive inflows of $35 Billion into Indian debt paper.

It is early to say if FPI flows have turned around to positive, but the sharp revival in FPI flows in the second half of February 2024 is a positive signal. The immediate challenge is the political uncertainty, which is reflected in the high levels of the VIX. Hopefully, once the pre-poll estimates are out by April, we could see the first signs of FPI flow direction for 2024.