FPIs bought and sold in April 2023

  • 02 Aug 2023
  • Read 8 mins read

Colour of FPI flows in April 2023

April 2023 saw robust flows into Indian equities. In fact, during April 2023, foreign portfolio investors infused $1.42 billion in equities through the primary and secondary markets. Just to put things in perspective, FPI selling started around October 2021 and over the next 9 months till June 2022, the FPIs sold $34 billion in Indian equities. Things did change and FPIs eventually infused $12 billion between July 2022 and December 2022. 

However, 2023 began on sour note with FPIs selling $4.21 billion in January and another $966 million in February 2023. March inflows were triggered by the GQG investment in the Adani group companies, but if you leave that deal aside, FPIs were still net sellers in March too. It is only in April 2023 that FPIs genuinely turned net buyers, infusing $1.42 billion. 


Global and domestic triggers for FPI flows

There have been several reasons for the persistent FPI selling in most of the last 20 months. Here are some of the key reasons. 

  • The weakness in the IPO market was a big factor in FPI net selling. After the sharp fall in digital IPO stocks, most FPIs became wary of IPOs and even the volume of IPOs went down. In 2022, most FPIs decided to give the LIC IPO a miss. It is only now that we are finally seeing FPI interest come back via the Mankind Pharma IPO. 

  • The second big factor has been the persistent Fed hawkishness in response to rising inflation. When the US is raising rates, the FPIs find bonds of developed markets more attractive in risk adjusted terms. Today, the gap between the repo rate in the US and the repo rate in India is just 150 bps. Clearly, that is not reflecting risk differentials. 

  • The third factor was the banking crisis that is gradually growing and enveloping the US markets. Several banks have either gone bust or have been bought out from the brink. Clearly, that is making FPIs wary as they expect this banking contagion to spread to emerging markets like India too. 

  • Finally, there are the domestic factors that are making the FPIs cautious. For instance, in India there is the spectre of rising inflation, which is yet to come under control even after 250 bps of rate hikes. Secondly, Indian companies are facing pressure on various counts like supply chain constraints, weak rural sales, and pressure on profits from rising interest costs. All these factors added up to make FPI flows tepid.

FPIs have been sceptical but things are looking up as FPIs are finally finding Indian valuations and the rupee stability as positives to invest in India. Let us now turn to which sectors the FPIs were buyers and where they were net sellers.

Sector churn of FPIs; long on financials and short on it

The theme was largely along expected lines. If you leave out the noise, the broad theme was to go long on financials and to go short on the IT sector. Of course, FPIs were also net buyers in auto stocks, capital goods, metals and FMCG; but it was the financials that took the cake.

Where FPI money flowed in

Where FPI money flowed out

SectorAmount ($ million)SectorAmount ($ million)
Financials (BFSI)+939Information Technology-601
Automobiles +243Media & Entertainment-27
Capital Goods+197Realty -26
Metals & Mining+173Consumer Durables-22

Data Source: NSDL

Let us first look at why the financial services sector attracted FPI inflow of $939 million in the month of April 2023. FPIs were already positive on the banks due to the lag effect that most of the banks were enjoying. Interest yields on loans had gone up in tandem with rising interest rates. However, deposits still had to pick up. This ensured record growth in net interest income (NII) of the banks and also record expansion in net interest margins (NIM). Both these factors combined with a sharp fall in NPAs enthused the FPIs about the financial sector. However, the bigger thrust came from the RBI decision to hold rates at 6.50% in its April policy. That indicated that rates may be close to the peak, if not at the peak. This led to strong buying in the rate sensitive sectors like NBFCs and automobiles also.

Why did the IT sector see heavy selling of $601 million in April 2023. It was a combination of reasons, but let us first understand that this sell-off has been a trend since the last few quarters. There were several triggers. Firstly, in the latest Q4 results, the top line growth was tepid, OPM was flat to negative and guidance was very cautious. That did not go down well with the FPIs. Secondly, IT is likely to suffer the most from a slowdown in IT spending. That will not only hit the top line growth but also the pricing power of the IT companies. Lastly, the banking crisis came as a latest challenge to the IT companies. Most Indian IT companies are still reliant heavily on the BFSI vertical, especially the mid-sized banks. The banking crisis was likely to impact the spending power of these banks.

How assets under custody (AUC) changed in April 2023

The NSDL gives sectoral data on 23 sectors and the top 16 sectors with AUC of above $10 billion accounted for 97.7% of the total FPI AUC of $571 billion. Sectors that saw AUC accretion in April included financials, oil & gas, automobiles FMCG, metals and power. The only sector that saw serious outflows was IT. Going ahead, FPI flows would predicate on IPO flows and global macros.

Content source: NSDL monthly data