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

5 Apr 2024 , 02:36 PM

FPIs DECISIVE NET BUYERS IN EQUITIES IN MARCH 2024

March 2024 saw the FPI flows back with a bang. It may not be as big as December 2023, but at $4.24 Billion, it was at least half way to the December 2023 flows. FPI flows had slowed considerably after the record $9 Billion infusion in December 2023. In January 2024, FPIs were net sellers to the tune of $417 Million in equities and they were net buyers to the tune of $182 Million in February 2024. In contrast, March 2024 saw a sharp spike in net inflows to $4.24 Billion. Interestingly, the first half of March saw FPI inflows of $4.91 Billion with the second half of the month saw outflows of $673 Million. The second half selling by FPIs was triggered by elevated volatility levels as tax farming took precedence for most investors.

If you look at the break-up of FPI flows in March 2024 to the tune of $4.24 Billion, nearly 83% of the net flows came through the secondary market while only the balance 17% came from the IPO markets. With $4.24 Billion of net flows, the net buying was fairly dominant at a sectoral level. The top 5 sectors saw combined net inflows of $3.47 Billion while the bottom 5 sectors saw net outflows of $810 Million in the month of March 2024. Much of the FPI flows in March 2024 were driven by expected changes to domestic indices and to the global MSCI index composition. Let us first turn to the major triggers for FPI flows in Mar-24.

WHAT INFLUENCED FPI FLOWS IN MARCH 2024

There were several factors that influenced FPI flows in March 2024. Some of the key drivers in the month were India IIP, current account deficit, Fed guidance and rupee weakness. Here is a quick dekko.

• The MOSPI had announced the GDP data for the third quarter on the last working day of February 2024. Hence, the impact of the positive GDP growth was visible int the form of FPI flows in the first half. It may be recollected that GDP for Q3 had been projected at 8.4% while the Q1 and Q2 GDP growth was also upgraded to 8%. This has raised the possibility that full year GDP for FY24 would touch 8%, a big positive for FPI flows.
• The current account deficit (CAD) for the third quarter was announced in the last week of March, but the market was already expecting a subdued CAD due to robust performance from the services trade surplus. The global trade slowdown had worked to India’s favour as imports were getting back-ended. This also put a check on the merchandise trade deficit.
• The Fed guidance on rates was rather disappointing in the second half of March. In the first half of March, Jerome Powell had hinted at 3 rate cuts in 2024, despite a delayed start. However, subsequent speeches by Bowman and Waller have questioned the need to hurry through rate cuts when the Fed could afford to wait longer. That dampened the market spirits and the FPI flows in the second half of March 2024.
• Finally, the rupee came under pressure in the second half of March and has now persistently stayed above the 83/$ mark. While rising crude oil prices (now closer to $90/bbl) has been one reason for the rupee weakness, it has also been impacted by the strength in the dollar. After the UK and EU decided to stop rate hikes, the Euro and Pound weakened, giving a boost to the dollar. That weakened the rupee in second half.

While the first half of March 2024 saw positive tidings for FPI flows from higher GDP, robust IIP and flat inflation, the Fed’s ambiguous guidance and the weakening rupee played truant with FPI flows in the second half of March 2024.

FPI AUC SCALES TO RECORD $770 BILLION IN MARCH 2024

Assets under custody (AUC) is the closing market value of equities held by FPIs. The AUC is a function of FPI flows and also the movements in major stock market indices. In March 2024, it was a mix of index appreciation and genuine FPI flows, boosting the AUC. Between February 2024 and March 2024, the FPI AUC is up 0.84%. However, if you compare the current AUC with the pervious peak AUC of $667 Billion recorded in October 2021, then the current AUC is a good 15.4% higher. Here is a quick MOM comparison of FPI AUC

Industry Group	FPI AUC (Mar 2024) ($ Billion)	FPI AUC (Feb 2024) ($ Billion)
Financials (BFSI)	223.10	219.70
Oil & Gas	72.39	72.46
Information Technology (IT) Services	70.31	78.51
Automobiles and Auto Components	57.97	54.48
Fast Moving Consumer Goods (FMCG)	48.39	48.48
Healthcare and Pharmaceuticals	45.36	45.39
Capital Goods	35.11	35.28
Power (generation and transmission)	33.55	34.13
Consumer Services	28.23	26.32
Telecommunications	24.28	21.50
Consumer Durables	23.58	23.74
Metals and Mining	23.35	22.51
Construction	17.69	16.46
Services	16.21	15.61
Realty	15.50	15.44
Cement	13.75	14.01
Chemicals	11.86	11.54
Top 17 Sectors	760.59	755.56
Other 6 sectors	8.92	7.51
Total FPI AUC	769.51	763.07

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 March 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 98.84% of total FPI AUC of $769.51 Billion. The FPI AUC has scaled a new historic peak in March 2024, and is now a good 15.4% above the previous peak achieved in October 2021. However, this is not surprising as the Nifty and Sensex are trading at life-time highs.

At $223.1 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 nearly 29% of the total AUC of FPIs. The other key sectors by AUC were oil & gas, IT, automobiles, healthcare, capital goods. In terms of MOM accretion to AUC, there was a sharp fall of over 10% in the FPI AUC in IT stocks in the aftermath of Accenture lowering its revenue guidance for 2024. Automobile and telecom were the two sectors that saw substantial accretion to AUC in the month of March 2024.

MARCH FPI BUYING DRIVEN BY TELECOM, FMCG, SERVICES, REALTY

In a month when the FPIs infused $4.24 Billion into Indian equities, there are bound to be a substantial number of inflow sectors. Here is a sectoral break-up of the positive net FPI inflows into Indian equities in March 2024.

FPI Flows Into Sectors	H1-Mar-24 ($ Million)	H2-Mar-24 ($ Million)	Mar-24 ($ Million)
Telecommunications	802	158	960
Fast Moving Consumer Goods (FMCG)	1,349	-593	756
Services	567	43	610
Real Estate	486	102	588
Consumer Services	497	63	560
Capital Goods	342	114	456
Financial Services (BFSI)	647	-228	419
Automobiles and Ancillaries	446	-250	196
Metals and Mining	33	112	145

Data Source: NSDL

The top 5 sectors that saw net inflows from FPIs were telecom, FMCG, Services, Real Estate, and Consumer Services. As usual the inflows into telecom were driven by Bharti Airtel while the FMCG flows were driven by select MNC stocks. Real estate attracted FPI attention in the month on the back of solid bookings and residential sales by most realty players. Metals and mining saw some concerted buying in the second half of March after China growth data came in stronger than expected, raising hopes of a rally in metal stocks.

FPI MARCH SELLING DOMINATED BY HYDROCARBONS AND IT

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

FPI Flows Out of Sectors	H1-Mar-24 ($ Million)	H2-Mar-24 ($ Million)	Mar-24 ($ Million)
Oil & Gas	-134	-140	-274
Information Technology (IT)	-133	-67	-200
Consumer Durables	-20	-141	-161
Healthcare	-190	75	-115
Cement	-33	-27	-60

Data Source: NSDL

In a month, when the FPIs were net buyers to the tune of $4.24 Billion, the selling obviously could not be too intense. However, there were pockets of news based selling by FPIs. For instance, there was heavy selling in oil & gas stocks in the month of March 2024. Many refiners are struggling with crude supplies due to the Red Sea crisis. The upstream companies were under pressure after expectations of a hike in the windfall tax amidst rising crude oil prices. Even the oil marketing companies came under pressure after the price of petrol and diesel were dropped by ₹2/litre ahead of the general elections.

There are 2 points that the FPIs would savour in this year. Unlike 2019, the VIX (volatility index) has not spiked ahead of the general elections. With elections less than a month away, the VIX is still hovering around the 11.2 mark, which is very low for election time. Early pre-election polls are hinting at a stable government post-elections with a clear focus on continuation of the reforms process. That should be music to the ears of FPIs in India.

FINALLY, 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 end 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)	29,152.54	5,945.78	35,098.32	16,987.88	51,996.20
Total for 2024 (₹ Crore)	(2,906.07)	13,799.72	10,893.65	66,326.04	77,219.69
For 2024 ($ Million)	(334.62)	1,664.04	1,329.42	7,989.82	9,319.24
# – Recent Data is up to March 29, 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 March 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. However, 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.
3. What is the story on the debt flow front in March 2024? In calendar 2023, 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 ₹66,326 Crore in just the first 3 months of 2024. Thanks to the JPM and Bloomberg bond index inclusion, the first quarter debt inflows of 2024 and more than the full year debt inflows of 2023. It is estimated that the index inclusion could trigger passive inflows of $35 Billion into Indian debt paper.

It is early to say if FPI flows have turned the corner on India, but equity enthusiasm has been high in March, despite the late sell-off. That is more one-off. The immediate challenge is the political uncertainty, but the low VIX levels appears to belie that risk. FPIs would, most likely, commit flows in a big way only after the election is completed, a new government is in place and the full budget presented. That is still some 4 months away.