FPI Inflow Hits 9-month High in May

May 2023 was a flattering month for FII flows

FY24 has started with a bang. In the month of April 2023, FPIs infused $1.42 billion into Indian equites. However, this was just the trailer. In May 2023, the FPIs infused a whopping $5.30 billion into Indian equities. That is the best flow from FPIs since August 2022, when they had infused more than $6 billion in a single month. Calendar 2023 may have started with a whimper, but is now picking up steam. FPIs were net sellers in January and February. March did see a turnaround to buying, but that can be largely attributed to the GQG block investment into a set of Adani stocks. If that was excluded, FPIs were actually net sellers in March 2023 also too. April 2023 started the turnaround, but May FPI inflows were so intense that it resulted in FPIs ending up as net buyers overall for calendar 2023 so far.

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FPI story for calendar 2023 so far

Here is how the FPI flows panned out in May 2023 and on a cumulative basis for the year overall.

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

Till the end of April, the FPIs were still heavily net sellers in Indian equities as well as for 2023 overall. The tide has suddenly changed in May and by the end of May 2023, FPIs are net buyers in equities to the tune of Rs29,258 crore and are overall net buyers to the tune of Rs337,091 crore. To an extent, the IPOs helped with the Mankind Pharma IPO getting a lot of buying interest from the FPIs in the anchor allocation as well as in the main IPO. However, to be fair, this data must be seen in light of the fact that FPIs had withdrawn $34 billion from Indian equities between October 2021 and June 2022. So, from a 2-year perspective, there is still a lot of ground to be covered by FPI inflows into India. For now, let us savour the good news and figure out the sectors where the FPIs invested in May 2023.

FPIs are still buying up financials and automobiles

Let us first look at where the FPI money flows into Indian equities. That is captured in the table below for May 2023.

Data Source: NSDL

There are no prizes for guessing. The top flow of $2.14 billion in May 2023 was reserved for the banks and financials; including insurance. That is where the FPIs are seeing the maximum traction and that is also evidenced by the Bank Nifty at its all-time high. Buying in financial services was an obvious corollary to the RBI decision taken in April 2023 to hold repo rates at 6.5%. Now there are expectations (and fairly strong expectations) that this would repeat in the June meet also. Broadly, the global and domestic cues are very favourable for sustained spreads of Indian banks. Banks are in an amazing sweet spot as their loan yields have jumped in line with higher repo rates but cost of deposits has not kept pace. This has led to a surge in net interest income (NII) and record NIM levels.

The other big inflow of $1.05 billion came into the automobile sector. Now, the auto sector has multiple positive triggers. Rural demand is looking up so two-wheelers and tractors are seeing good numbers. Most of the PV companies are benefiting from revenge buying which has led to unprecedented queues for new cars. Autos also gained from a sharp fall in the inputs that go into the manufacture of automobiles even as pricing power has stayed intact. Other than autos, FMCG and Consumer services also saw sharp inflows in May on the back of positive consumer sentiments. Healthcare inflows look great but that can be largely attributed to the Mankind Pharma IPO.

A quick word on the FPI selling. Obviously, in a month when FPI flows were $5.30 billion, you could not have too many sectors being sold into. IT was one sector where margin concerns and growth guidance worries led to FPI selling to the tune of $108 million. Other sectors that saw selling by FPIs were much smaller in scale. 

How did FII AUC change for the top 5 sectors

Assets under custody (AUC) measures the closing market value of all equities held by FPIs and it is a function of flows and of market performance. Incidentally, FPI AUC had peaked at $667 billion in October 2021. From that point, it fell to a low of $523 billion by June 2022. As of the close of May 2023, the FPI AUC stands at $590 billion. Here are the top sectors 5 by AUC as of the close of March 2023.

Data Source: NSDL

The AUM gains in the last few months are most prominent in financials, FMCG and autos. Now, that is hardly surprising.

Content Source: NSDL