FPIs infuse 3rd highest net inflow on 30th November

The 30th of November 2022 was a special day for Indian markets in terms of FPI flows. On the last trading day of November, the Foreign institutional investors (FIIs) reported the third highest single-day net inflow into Indian equities at Rs. 9,010 crore. Now, it is not often that you get to see FPI flows of more than $1 billion in a single day, but on the 30th of November, the FPIs infused a full $1.10 billion into secondary market equities. In the routine NSDL reporting, this would get reported as part of December 01 reporting, but if we take a more realistic picture, then the FPI flows were more than $5 billion in November 2022.

The FPI flows of Rs. 9,010 crore in a single day was special for one more reason. It was the third highest single day flow into Indian equities by the PFIs. What were the previous records. The all-time record was touched on 24th February 2021 when the foreign portfolio investors infused a total of Rs. 28,739 crore into equities in a single day. The second best day for equity inflows from FPIs was the 21st of April 2015, when the FPIs had infused an imposing Rs. 17,489 crore in a single day. Compared to that, the inflow of Rs. 9,010 crore may look much smaller, but it is still the third best net inflow into Indian equities in FPI history.

The reasons are not far to seek. Most analyst had already predicted a high adjustment inflow into India on 30th November. Normally, such adjustment flows are required when new companies are added to the benchmark indices. For the global index funds and ETFs that benchmark to the Indian markets, the relevant index is the MSCI Emerging Markets index. When new companies get included in the index, the index funds and index ETFs that just passively track these indices, have to increase their holdings to match that of the index. This results in heavy FPI inflows on such adjustment days.

According to a report by IIFL Alternate Research, the total inflow of Rs. 4,735 crore on 30th November was explained by such adjustment flows as index funds tweaked holdings to match them with the underlying index they were benchmarked to. In short, half of the flows on the day were explained by index adjustments by passive funds. The balance could be routine buying in the markets or even warehouse buying on these counters expecting index adjustments. Some of the stocks that got included in the MSCI Global Standard Index were Tube Investments, IHCL, Varun Beverages, TVS Motor, Bajaj Holdings and ABB India. The recently listed Zomato saw an increase in its weight in the index.

However, any index adjustment is not about weight increase alone. There is also a fall in weights of some stocks. In fact, there were a total of 20 stocks that saw a reduction in their weightage in the index. This included marquee names like Infosys, ICICI Bank, HDFC, TCS, HCL Tech, SBI, ITC, Maruti, Kotak Bank and many more. These flows were also instrumental in boosting the Nifty and the Sensex to new highs. Ironically, even as FPIs have been lapping up Indian stocks, domestic investors have been selling aggressively. On the last day of November alone, domestic institutions sold stocks worth Rs. 4,056 crore and have been net sellers in the month of November overall, a trend that is in contrast to the last one year.