8 mins read . 24 Jul 2023
The months of May 2023 and June 2023 were absolutely fabulous months for FPI flows. If May saw $ 5.3 billion come into Indian equities, then June saw $5.7 billion coming into Indian equities. In the first 18 days of July, FPIs have already pumped in over $4.2 billion into Indian equities. In short, FPIs have infused more than $15 billion into Indian equities in a little over 75 days. The number of trading sessions would be less than 60 but we will not get into that.
The moral of the story is that the intensity of FPI flows in the months of May, June and July have ensured that FPIs are now net buyers in Indian equities in calendar year 2023 worth more than Rs1 trillion. If you recollect, FPIs had taken out $34 billion from Indian equities between October 2021 and June 2022, over a period of 9 months. Nearly, half of that money has come back into India merely in the last 75 days. That is what makes the FPI flows story into Indian equities so special.
What has been the key trigger for such a deluge of FPI flows into India in the last 75 days? It is not just one reason but a confluence of several reasons. Let us enumerate some of them.
If you look at these 4 segments of BFSI, automobiles, FMCG and capital goods; they accounted for more than 80% of the FPI flows in the last 75 days. Clearly, it is these four sectors that virtually defined the intensity of FPI flows into Indian equities.
Assets under custody (AUC) is the closing market value of all the equities held by FPIs. Needless to say, the AUC is a function, partially of FPI flows and partially of stock market performance. Interestingly, both have been extremely robust in the last 75 days. FPI flows have been relentless while the Nifty and Sensex are already at lifetime highs. That has come as a double blessing for the AUC of FPIs. However, it must be said that the AUC as of end June 2023 is still well below the peak levels seen in October 2021.
The FPI assets under custody (AUC) as of end June 2023 stands at $626 billion. It must be noted here that the peak level of FPI AUC was $667 billion recorded in October 2021. While, the current FPI AUC is still short of the previous peak, the AUC is sharply higher than the lows of $523 billion recorded in the month of June 2022. The table below captures the comparative AUC of the top 8 sectors with AUC of more than $20 billion.
FPI AUC (Jun 2023)
FPI AUC (May 2023)
|Information Technology (IT) Services|
|Oil & Gas|
|Fast Moving Consumer Goods (FMCG)|
|Automobiles and Auto Components|
|Healthcare and Pharmaceuticals|
Data Source: NSDL
The top 16 sectors with AUC of more than $10 billion account for 97.63% of total FPI AUC of $626 billion as of the close of June 2023. BFSI has regained its highs in terms of AUC while automobiles and FMCG AUC is much higher than the previous peak of October 2021. However, most of the damage in AUC over the last 2 years has happened in sectors like IT and oil & gas. IT clearly has been the least preferred sectors for the FPIs in the recent past due to reasons like rising attrition, thinning margins, slowing revenues and concerns over the impact of the global economic slowdown. While the domestic funds and insurance companies have turned positive on Indian IT, the FPIs continued to be negative on IT stocks and that is evident in the massive loss of AUC since the peak of October 2021.
A number of factors have triggered this surge in FPI flows. $15 billion in 75 days is no mean achievement and shows a strong sense of urgency in FPIs in getting back their AUC share of Indian equities. For now, global triggers still remain the key. The US Fed meets on July 26, 2023, and the talks and communication from the Fed still remain hawkish with commitment to 2 more rate hikes of 25 bps each. If the Fed remains hawkish, the RBI may have to match it with some degree of hawkishness. That could put the Indian economy in a slightly touchy spot between higher funding costs in India and weak global demand for Indian goods and services. A lot will depend on how well this situation can be avoided.