Sectors that FPIs bought and sold in April 2023

April 2023 saw healthy equity inflows from FPIs to the tune of $1.42 billion. Out of this more than $1 billion came in the first half of the month itself. Before we go ahead, let us quickly understand why this inflow is important to the India equity story. Year 2023 began with heavy FPI selling in January 2023 and more muted FPI selling in February 2023. March 2023 did see FPI inflows of $966 million, but that was on the back of $1.9 billion infusion into the Adani group stocks by GQG. If that is adjusted then FPIs were net sellers in equities in March 2023 also. April 2023 was the first month of equity inflows from FPIs; which were persistent and not driven by any sort of block deals. That is what makes FPI flows in April significant.

The other factor is that one must look at the FPI flows in a larger context. For instance, FPIs saw significant outflows of $34 billion between October 2021 and June 2022. That is a lot of money going out. FPIs did infuse about $12 billion between July 2022 and December 2022, but that was still just a third of the money they had taken out in the previous nine months. That is why 2023 was important but that had started on a negative note. Now that we know the bigger picture, let us look at what these FPIs bought and sold in April 2023. We shall focus at a sectoral level on which sectors they bought into and which sectors they sold into.

Monthly colour of FPI flows in calendar year 2023

Here is how the FPI flows in April 2023 and on a cumulative basis looked like.

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

Now prizes for guess the one big difference between the flows in 2022 and the flows in 2023. IPOs were sorely missed in 2023. After a slew of IPOs in late 2021, the IPO market almost went into a sense of quietness. Even the LIC IPO could not galvanize the FPI flows as foreign investors were just not interested, even as Delhivery had seen some interest. Tings changed in April 2023 with Mankind Pharma IPO getting a very strong response from the FPIs; both in the anchor allocation and in the IPO offering. The bigger challenge is that the FPI slowdown in flows is due to the changing macros; both domestically and globally.

For instance, Fed hawkishness has been a major issue for FPIs as it makes global bonds more attractive. In addition, there are fears of a global recession that is impacting top lines of many export drive sectors in India. Then there is the banking crisis that is gradually growing and that is not making the FPIs comfortable. Under these circumstances, they prefer to keep a low profile in emerging markets and stick to the tried and tested markets or the safe haven markets as it is called. Even on the domestic front, there are challenges like rising inflation, pressure on corporates and concerns over GDP growth and fiscal deficit.

What was the sectoral story of FPI flows in April 2023

Data Source: NSDL

Which sectors attracted FPI buying in April 2023 and why? The BFSI or the financial services space attracted bulk of the inflows from FPIs. Not just banks, but even NBFCs saw FPI buying. After the RBI held rates at 6.5%, it was the rate sensitives like NBFCs and autos that attracted a lot of FPI interested. Metals were a play on potential revival in China demand while capital goods were a bet on the positive turnaround in the capital investment cycle. FMCG was more of a neutral bet on the markets as a safe haven resource. There was not much of a riddle on the sell side with IT dominating the selling in the month. In fact, FPIs sold IT stocks worth $601 million in April 2023, as they persisted with their negative view on IT stocks. The tepid margins and weak guidance only added to these concerns of FPIs.

How all this impacted the FPI assets under custody (AUC)?

Unlike mutual funds, FPIs hold assets in custody and do not manage assets. Hence they have AUC and not AUM. The table below captures the gist of the AUC story and how the AUC changed in April over March 2023.

Data Source: NSDL

In the table above, we have presented 16 out of the 23 sectors presented by NSDL and have selected sectors with an AUC of minimum $10 billion. These top-16 sectors account for 97.68% of the total FPI AUC of $571.12 billion. Some of the sectors that saw accretion in AUC include financials, oil & gas, automobiles FMCG, metals and power. Among the sectors that saw depletion in AUC, it was of course the IT sector.

Overall, the FPIs seem to have turned buyers and future trajectory will depend on IPO flows and market sentiments.