In the realm of global investments, the Indian stock markets has emerged as beacon of attraction for foreign portfolio investors. The month of June’23 witnessed an extraordinary surge in FPI flows, reaching $6.9B in equity, debt and hybrid. This remarkable achievement underscores the growing confidence of foreign portfolio investors in the Indian markets. With Sensex and Nifty 50 soaring to all-time highs, the Indian stock market continues to attract the foreign portfolio investors. This article aims to delve deeper into the FPI activity during this period, analysing the sectors that garnered significant inflows and the factors driving this remarkable growth.
Tracking the Tides: Exploring the Monthly Net Flows of FPIs in the Last Year
In the last twelve months, starting from July 2022, foreign portfolio investors (FPIs) have exhibited strong confidence in the Indian market, pouring in a substantial amount of capital. The chart below illustrates the monthly net flows of FPI investments from June 2022 to June 2023, providing a comprehensive view of the changing investment landscape.
During the period, FPIs injected a total of $16.6 billion into the Indian markets, reflecting their growing interest and belief in India’s economic prospects. Among the standout months, August 2022 stood out with a remarkable inflow of $7.1 billion, showcasing a surge in investor confidence and robust investment activity for that particular month. Post-August 2022, the FPI flows were not consistent for the rest of the year, exhibiting fluctuations in response to various market dynamics and global factors. In 2023, May and June emerged as exceptional months, witnessing impressive inflows of $5.9 billion and $6.9 billion, respectively. June stands out as a milestone, marking the 4th consecutive month of positive FPI flows.
Sector Spotlight: Which sector received the highest inflows in first quarter of FY2023?
The financial services sector emerged as a frontrunner in attracting FPI flows during the quarter Q1’FY24, experiencing inflows of investments amounting to a staggering $5.6 billion. The month of June, in particular, witnessed an outstanding net flow of $2.3 billion, showcasing the immense confidence and growing interest of foreign portfolio investors in India’s financial services. This surge in FPI investments reflects the recognition of the sector. With its diverse range of offerings, including banking, insurance, and non-banking financial companies (NBFCs), the financial services sector has become a magnet for global investors.
The financial services sector continued to witness exceptional FPI inflows, surpassing the $2 billion mark for the second consecutive month. This sustained buying activity in the sector can be attributed to the favourable macroeconomic environment and the recent decision by the Reserve Bank of India (RBI) to hold the repo rate at 6.5% for the second policy in a row. Notably, the significant buying interest in banks by FPIs can be seen as a proxy for the broader Indian macroeconomic story. Banks, with their substantial weightage and influence, serve as a key indicator of the overall health and performance of the Indian economy. Financial services sector attracted consistent flows, while the automobile sector received positive FPI inflows. However, the IT sector continued to face outflows, experiencing a negative trend throughout the year.
The automobile sector has exhibited consistent positive FPI flows since July 2022, with notable peaks in May 2023 at $1.1 billion and June 2023 at $0.7 billion. This surge can be attributed to multiple factors, including strong rural demand, a resurgence in revenge consumption, and significant reductions in operating and manufacturing costs. These favourable conditions have propelled the automobile sector forward, attracting substantial foreign investor interest and contributing to its positive trajectory.
In contrast, the IT sector has witnessed outflows over the past year, with FPIs selling off investments totalling -$3.6 billion. This sector experienced the highest outflows among all sectors. The outflows in the IT sector can be attributed to concerns surrounding a global economic slowdown and potential cutbacks in spending by IT companies in developed economies. These factors have prompted foreign investors to re-evaluate their positions in the IT sector, leading to a negative trend in FPI flows.
Growth in Assets under custody over the years
The total Assets Under Custody (AUC) has witnessed a sustained growth since 2012. After crossing the $700 bn mark in 2021, the total Assets Under Custody (AUC) dropped to $634 bn in 2022. As of June 2023, it stood at $678 bn, down ~4% from the peak.
Conclusion
In conclusion, Q1FY24 showcased positive FPI trends in sectors like financial services and automobiles, while the IT sector experienced consistent outflows in the first half of 2023. The impact of a declining dollar can be powerful trigger to sustain FPI flows, the future of “sell China, buy India” policy remains uncertain. Amidst potential risks and uncertainties, such as global economic conditions, central bank policies, and sector-specific challenges, vigilance is vital for investors and market participants. Investors and market participants must closely monitor these factors and their implications on the investment landscape.
Disclaimer: This article has been issued on the basis of internal data, publicly available information and other sources believed to be reliable. ‘Others’ sector has not been considered as there is no constituent breakup provided for it. The information contained in this document is for general purposes only and not a complete disclosure of every material fact. The indices mentioned herein is for explaining the concept and shall not be construed as an investment advice to any party. The information / data herein alone is not sufficient and should not be used for the development or implementation of any investment strategy. It should not be construed as an investment advice to any party. All opinions, figures, estimates and data included in this article are as on date. The above graph is used to explain the concept and is for illustration purpose only and should not be used for development or implementation of an investment strategy. Past performance may or may not be sustained in future. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The statements contained herein may include statements of future expectations and other forward-looking statements that are based on our current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. The Stocks/sectors mentioned above are used to explain the concept and is for illustration purpose only and should not be used for development or implementation of any investment strategy. It should not be construed as investment advice to any party. The stocks may or may not be part of our portfolio/strategy/ schemes. Past performance may or may not be sustained in future. Readers shall be fully responsible/liable for any decision taken on the basis of this article. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
