6 mins read . 10 Jan 2023
FPIs overall sold equities worth $16.5 billion in the year 2022, but it was a tale of two halves. The first half of 2022 up to June saw outflows of $28.5 billion from the FPIs. However, in the second half from July to December 2022, FPIs infused $12 billion into Indian equities; with bulk of the inflows coming in the months of August and November. The month of December 2022 saw net FPI inflows into equities to the tune of a relatively subdued $1.35 billion. December flows were less than a third of the net inflows in November 2022. For the month of December 2022, FPI infused $1.09 billion in the first half of the month and $260 million in the second half of December. That is good inflows for the normally quiet last month.
|Sectors that saw net FPI Buying||Amount ($ bn)||Sectors that saw net FPI Selling||Amount ($ bn)|
|Consumer Services||442||Oil & Gas||-337|
|Capital Goods||261||Consumer Durables||-66|
|Metals & Mining||202|
Data Source: NSDL
The million-dollar question is why did consumer-facing sector attract most of the FPI flows in December 2022. On the inflow side, the top 4 are consumer-facingfastest-growing sectors. The bet is fairly understandable in an uncertain global business environment, especially since India is likely to be the fastest growing large economy in 2023. FPI buying gravitated towards domestic-driven sectors. For instance, FMCG attracted $486 million and consumer durables $442 million. Among others, realty saw inflows of $394 million and financial services $314 million. The top 4 sectors attracting positive flows in December were domestic-demand driven, which FPIs see as a good hedge against global uncertainty. Other inflows were minimal.
Two heavyweight sectors with global dependence, were among the top sells for FPIs. IT sector saw outflows of $433 million and Oil & Gas saw outflows of $337 million. IT sector is likely to see revenue growth fall from mid-teens to 8% levels with the potential to negatively impact tech spending and the pricing power of IT companies. In the case of oil, rising crude prices would mean that oil marketers will continue to bear the subsidy burden in coming months. In addition, upstream oil companies are likely to be hit by the recently introduced windfall tax on domestic output and exports. The broad theme of FPIs in 2022 appeared to be long on domestically dependent companies and short on globally exposed companies.
Assets under custody (AUC) is a function of flows and market performance. From a peak of $667 billion in October 2021, the FPI AUC fell to a low of $523 billion in June 2022. The sharp index correction in December 2022, took the AUC to $584 billion. Here is a sneak peek at the top 8 sectors in terms of FPI AUC.
|Industry Group||Assets Under Custody (AUC) of FPIs - $ Billion (Dec 2022)|
|Oil & Gas||66.81|
|Healthcare and Pharma||28.06|
|Metals & Mining||20.85|
Data Source: NSDL
Out of a total of 23 sectors identified by NSDL, the top 14 sectors accounted for 95% of the total FPI AUC of $584 billion. Not surprisingly, the financials (banks, NBFCs and insurance) accounted for 32.95% of overall FPI AUC. Other major contributors to FPI AUC were Oil & Gas, Information Technology and FMCG. In fact, barring FMCG and Metals; all other sectors saw AUC tapering in December 2022.
While FPI flows may have been under pressure in 2022, there may be good news for 2023. Firstly, risk-on investing is coming back and once there is clarity on peak US rates, we could see FPI flows into India intensifying. Secondly, passive flows have been quiet for the last one year and we could see revenge buying from index funds and global index ETFs, subject to market liquidity. Thirdly, the theme may still be long on domestic plays and short on global plays through most of year 2023. Apart from these factors, the robust India growth story; being the fastest growing large economy, will sustain interest in India. For now, a reform oriented Union Budget can bridge the gap quite meaningfully.