FIIs Buy Indian equities worth $3.18 Billion in June 2024

5 Jul 2024 , 09:26 AM

FPIS NET BUY $3.18 BILLION IN JUNE 2024

The month of June 2024 almost looked like a reverse of May 2024. If May saw FPI outflows of $3.06 Billion from equities, then June 2024 saw net inflows of $3.18 Billion into equities. That is almost a perfect offset. If you combine April and May (the first two months of FY25), then FPIs had sold $4.10 Billion of Indian equities. This is now largely compensated for in June. What changed the sentiments so drastically in June? There were several factors. The month of June started with scepticism as markets worried that a coalition government may derail the reforms process. Nothing of that kind looks likely; at least the Modi 3.0 government has assured that reforms will stay on track.

With the end of political uncertainty, even the VIX has normalized to a large extent. Ironically, FPIs were net sellers in the first half of June but turned aggressive net buyers in the second half once the new government took oath at the centre. FPIs sold $(366) Million of equities in the first half of June 2024 and turned net buyers to the tune of $3,550 Million in the second half of June 2024, resulting in overall net buying of $3.18 Billion in June 2024. This is the best month since FPIs infused an impressive $4.24 Billion was infused by FPIs into Indian equities in March 2024. There is another interesting piece of statistics here.

The total gross selling in the month of June 2024 was at $(1,541) Million while the gross buying was at $4,725 Million. The turnaround happened entirely in the second half of June 2024. If you look at the break-up of FPI infusion in June 2024 to the tune of $3.18 Billion, there was an infusion of $0.27 Billion into IPOs while the secondary markets actually saw net buying by FPIs to the tune of $2.91 Billion. In terms of sectoral dominance in FPI flows, just 4 sectors viz., BFSI, Telecom, Consumer Services and Healthcare accounted for inflows to the tune of $3 Billion in the month of June 2024. In a nutshell, it was the return of political stability and political certainty that worked magic for the FPI flows.

WHAT INFLUENCED FPI FLOWS IN MAY 2024

Broadly, there were 4 factors that had an impact on the FPI flows in the month of June 2024.

• The end of political uncertainty was the biggest factor. Even as the domestic investors and the political analysts were predicting a landslide win for the ruling NDA, the final outcome was much more modest. However, the FPIs are happy with the fact that the reforms process is still on track and the government would continue to focus on capital spending, big-ticket reforms, and fiscal prudence.
• Two key announcements on the last day of May, actually influenced the FPI flows substantially in the month of June, largely in a positive way. Firstly, India GDP for the fourth quarter came in higher than expected at 7.8% and full year FY24 GDP came in at a whopping 8.2%. In addition, the government closed FY24 with fiscal deficit at 5.6% against the revised estimate of 5.8% of GDP. Both these factors actually played out in the month of June.
• In the last week of June, the RBI announced the current account deficit number for the fourth quarter and for the full year. For the fourth quarter, India surprisingly reported a current account surplus of 0.6% of GDP. This was largely on better trade terms in goods and services. For the full year, the current account deficit (CAD) came in at 0.7% of GDP against the expectation of 1% of GDP. That is substantially better than expectations.
• Lastly, the confidence that the Fed would finally embark on rate cuts this year also fuelled FPI interest in EMs like India. While the Fed cut its rate cut estimates to just one in the current year, the markets are now betting that the Fed will get more aggressive in rate cuts in 2025. That has also fuelled FPI interest in Indian equities.

In June, there was still scepticism in the first half of the month, but the sentiments actually changed only after the cabinet was formed and the new government took charge.

FPI AUC SCALES TO RECORD $856 BILLION IN JUNE 2024

Assets under custody (AUC) is the closing market value of equities held by FPIs, and is a function of FPI flows as well as the price accretion / depletion in that period. In May 2024, the flows were negative at $-3.06 Billion, but the markets still managed to remain robust. That had ensured that the FPI AUC got tantalizingly close to the $800 Billion mark. This month, the FPI AUC is decisively higher at $856 Billion. Between April 2024 and May 2024, the FPI AUC was up less than 1%. However, if you compare the current AUC with the pervious peak AUC of $667 Billion in October 2021, it is a good 28.34% higher. Here is a quick MOM comparison of FPI AUC

Industry Group	FPI AUC (Jun 2024) ($ Billion)	FPI AUC (May 2024) ($ Billion)
Financials (BFSI)	246.24	227.72
Oil & Gas	73.85	70.79
Information Technology (IT) Services	71.65	65.16
Automobiles and Auto Components	68.44	62.91
Fast Moving Consumer Goods (FMCG)	50.55	47.66
Capital Goods	49.02	45.12
Healthcare and Pharmaceuticals	47.88	44.40
Power (generation and transmission)	38.28	38.11
Consumer Services	33.52	29.26
Telecommunications	31.62	28.76
Metals and Mining	26.34	26.76
Consumer Durables	25.10	23.76
Realty	19.58	17.70
Services	18.55	17.69
Construction	16.96	17.55
Cement	15.88	13.54
Chemicals	13.60	12.12
Top 17 Sectors	847.05	788.99
Other 6 sectors	9.05	8.21
Total FPI AUC	856.10	797.20

Data Source: NSDL

The table above captures the top 17 sectors where the FPI AUC is more than $10 Billion as of the close of June 2024. NSDL has pruned the list of sectors to 23. Out of these 23 sectors, the AUC of the top-17 sectors accounted for 98.94% of total FPI AUC of $856.10 Billion. The FPI AUC has scaled a new historic peak in June 2024, and is now above $850 Billion.

At $246.24 Billion, it is the BFSI sector that has continued to dominate the AUC stakes, despite some heavy selling in recent months. The AUC of financials accounts for 28.76% of the total AUC of FPIs. The other key sectors by AUC were oil & gas, IT, automobiles, FMCG, capital goods, healthcare, and power. In terms of MOM change in AUC in June 2024, positive accretion was seen in BFSI, IT, automobiles, capital goods, healthcare, and telecom. On the downside, AUC depletion was seen in construction, services, and metals & mining.

JUN-24 FPI BUYING DRIVEN BY BFSI, TELECOM, CONSUMER SERVICES

In a month when the FPIs were net buyers of $3.18 Billion in Indian equities, one would presume there were substantial positive flows. In fact, there were quite a few of them.

FPI Net Buying in Sectors	H1-Jun-24 ($ Million)	H2-Jun-24 ($ Million)	Jun-24 ($ Million)
Financial Services (BFSI)	120	978	1,098
Telecommunications	208	744	952
Consumer Services	192	371	563
Healthcare	49	346	395
Capital Goods	-16	351	335
Realty	217	110	327
Chemicals	110	124	234
Cement	36	177	213
Automobiles	-38	246	208

Data Source: NSDL

The top 5 sectors that saw net inflows from FPIs were BFSI, Telecom, Consumer Services, Healthcare, and Capital Goods. The inflows into consumer services came largely through IPOs. BFSI largely showed macro allocations come back to India and IT emerged as an interesting play to hedge against the falling rupee. Telecom interest continued to be driven by Bharti Airtel and Indus Towers, which saw a series of block deals in the month.

JUN-24 FPI SELLING DOMINATED BY BANKS, CONSTRUCTION, OIL & GAS

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

FPI Net Selling in Sectors	H1-Jun-24 ($ Million)	H2-Jun-24 ($ Million)	Jun-24 ($ Million)
Metals & Mining	-223	-135	-358
Construction	-318	-8	-326
Oil & Gas	-441	+126	-315
Power	-7	-292	-299
Information Technology	-306	+189	-117
Fast Moving Consumer Goods (FMCG)	-29	-81	-110

Data Source: NSDL

In a month, when the FPIs were net buyers to the tune of $3.18 Billion, the selling would have been expected to be sober. However, there were pockets of selling too. Metals stocks saw the maximum selling in the month of June 2024 on valuation concerns as well as the fears of weak growth in China. Construction stocks took a hit as the election period had resulted in a number of construction projects put on hold. That is likely to change from thing month. Oil & gas has already seen a frenetic rally, so some profit taking was anticipated, especially with the price of Brent Crude again bouncing above $85/bbl in the month.

The month of June saw a sense of normalcy and sanity return to markets, once the political equations were clear. The government has already allayed the fears of investors on reforms, fiscal prudence, and capital expenditure. The FPIs, for now, would wait for the full budget to be presented in the end of July to just check if the government is actually walking the talk. After the pressures of coalition politics bring a different kind of pressure altogether.

MACRO PICTURE OF FPI FLOWS IN LAST 3 YEARS

Here is a combined picture of FPI net flows across the last 3 years viz. 2022, 2023 and the year 2024 as of date. 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)	29,152.54	5,945.78	35,098.32	16,987.88	51,996.20
Apr-2024 (₹ Crore)	(23,331.04)	14,659.77	(8,671.27)	(7,588.75)	(16,260.02)
May-2024 (₹ Crore)	(30,613.87)	5,027.54	(25,586.33)	12,675.47	(12,910.86)
Jun-2024 (₹ Crore) #	24,345.55	2,218.99	26,564.54	15192.90	41,757.44
Total for 2024 (₹ Crore)	(32,505.43)	35,706.02	3,200.59	86,605.66	89,806.25
For 2024 ($ Million)	(3,875.52)	4,292.41	416.89	10,423.99	10,840.88
# – Recent Data is up to June 28, 2024

Data Source: NSDL (Negative figures in brackets)

Here are some key takeaways from the summary of FPI flow numbers up to the close of May 2024.

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. The 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. IPO flows were robust in both the years; 2022 and 2023.
2. What is the FPI flow story in year 2024 till date. As of the close of June 2024, the FPIs were net buyers in India to the tune of ₹89,806 Crore. However, out of this net buying amount, ₹86,606 Crore (96.4%) came from debt market inflows and equities saw net outflows of just ₹3,201) Crore. Debt flows were driven by index inclusion expectations. If you break up the ₹3,201 Crore of FPI net inflows into equity in 2024, the secondary markets saw net outflows of ₹32,505 Crore while the IPO markets saw net inflows from FPIs of ₹35,706 Crore. Equity IPOs and debt have saved the day for FPI flows in 2024.

FPIs have been rather ambivalent about India in 2024 and that is not surprising considering the plethora of contrasting signals. However, now all that uncertainty is history. The new government (Modi 3.0) is in place and VIX has come down to normal levels. Now, the FPIs will start factoring in other positives in the last 2 months like the GDP growth, fiscal deficit control, and the lower than expected current account deficit (CAD). FPIs should find this narrative compelling. Most probably, we could see a deluge of FPI flows into Indian equities after the full budget is presented by the government later in July 2024.