FIIS bet on capital cycle but against BFSI in August

  • 05 Jun 2024
  • Read 10 mins read

FPI flows slow, but there is still a story

To an extent, you can call August 2023 a minor disappointment for FII flows. Between May and July 2023, the FPIs infused $5.5 billion on an average each month. In comparison, the FPI flows into Indian equities were just about $1.48 billion in August 2023. In absolute terms, August is not a bad month for FPI flows, but it is surely lower compared to the average flows between May and July Take at the 2023 monthly FPI flow table below.



FPI Flows Equity

FPI Flows Debt/Hybrid

Overall FPI Flows

Calendar 2022




































Sep-2023 #




Total for 2023




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

What do we read from the FPI flows table above. Let us leave out September since it just considers 5 days of data, but there are two things that stand out about August. Equity flows may have been tepid, but debt flows have been robust. Also, the inflows by FPIs in the first 8 months of calendar 2023 has more than offset the negative flows of calendar 2022. The million dollar question which sectors did the FPIs buy into and which sectors did they sell into? Let us look at the FPI buying in August 2023 first.


FPIS buy aggressively into capex cycle and it

The capex cycle buying is understandable, but the IT buying may sound rather intriguing, but we will come to that later. Here are the sectors that commanded bulk of the FPI inflows in the month of August 2023.

Where FPI money flowed in

SectorAmount ($ million)
Power Sector+1,398
Capital Goods+1,007
Information Technology (IT) +495
Consumer Services +246

Data Source: NSDL

In a month when the net inflows from FPIs into Indian equities were just about $1.48 billion, two sectors attracted more than $1 billion in FPI buying. Let us look at the highlights of the FPI inflows into sectors in August 2023.

  • The power sector got the bulk of the inflows of $1.398 billion. Here is a catch. Much of the funds that flows from FPIs was accounted for the inflow of GDP Partners flows into Adani group power stocks. However, that is FPI flows nevertheless. FPIs appear to be betting heavily on power companies with a strong green energy footprint.

  • Capital goods has been among the top recipients of FPI flow sin recent months and August 2023 saw FPI flows of $1.01 billion into the capital goods sector. Clearly the FPIs are betting heavily on revival of the capital investment cycle in India. After all, with government aggressive on capex and the order books of capital goods players overflowing, the rising confidence is leading to more capital investments. 

  • Among other sectors, IT and healthcare attracted combined sectoral inflows of $670 million. However, this appears to be a hedge against the weakening rupee versus the dollar. The rupee has weakened beyond 83.10/$ to all-time lows and that is likely to impact the dollar returns in the FPI portfolio. Buying into export oriented sectors like IT and Healthcare gives the FPIs a natural hedge against weakening rupee.

The moral of the story is that FPIs in August 2023 have made two big bets. Firstly, they are betting on the theme of capital investment cycle revival and second on dollar revenue companies that can act as a hedge against rupee weakening. Let us move to FPI selling.

FPIS sell aggressively in metals, BFSI and FMCG

The selling was quite high on 3 major sectors viz. metals, BFSI and FMCG. BFSI was the sector that attracted $6 billion out of the $17 billion of FPI inflows that came into India between May and July. However, the tables appear to have changed in August as you can see in the table below.

Where FPI money flowed out

SectorAmount ($ million)
Metals & Mining-840
Financials (BFSI)-784
Oil & Gas-269

Data Source: NSDL

Between Metals, BFSI and FMCG, the FPIs sold off nearly $2 billion of equities in August. Here  were the major triggers for the selling in August. 

  • Metals and mining stocks saw FPI selling of $840 million in August. That is hardly surprising. Metals have seen a frenetic rally in recent months. However, with the mounting real estate crisis in China and risks of China slowing, metal stocks are under pressure. After all, China still accounts for more than half the demand for most of the global commodities in the world. FPI selling in metals is hardly surprising.

  • BFSI was perhaps more of a reversal of the aggressive buying by FPIs in the last 3 months. But there were some triggers too. FPIs have been wary of Indian banks after Moody’s downgraded US mid-sized banks. Also, the Fitch downgrade of US debt was expected to trigger passive outflows from banking stocks in India; being the index heavyweight. Rising bond yields are also not helping the cause for banks.

  • FMCG sector saw selling of $315 million and there were two triggers. Firstly, rural sales are still struggling and the recent data points of higher food inflation only worsens the equation. In addition, crude has shot up beyond $90/bbl in the Brent market and it is an important input for most of the FMCG products. That is also an overhang.

To sum up the sell side story by FPIs, it is about macro risks at the level of China, risk-off selling and crude oil prices.

Has FPI AUC gotten back to peak levels?

Even as the Nifty and Sensex are close to peak levels, the assets under custody (AUC) of FPIs in India is still below the peak of October 2021. However, the gap is not much. Against the peak FPI AUC of $667 billion, the FPI AUC stands at $644 billion today. Which are the sectors that built up FPI AUC in August 2023? Clearly, it was IT, capital goods and power. No prizes for guessing really. Which sectors lost on AUC in August? It was BFSI, oil & gas, FMCG and august that saw the bulk of the AUC depletion. August leaves the FPI story at a very delicate point. September could be more interesting!