By Akshat SinghIn India, the investment landscape has shifted. While FIIs were net sellers in 2022, they were net buyers in Indian equities in 2023, contributing a total inflow of Rs 1.58 lakh crore. MFs were also net buyers, injecting nearly the same amount (Rs 1.57 lakh crore) as FIIs into Indian stocks. MFs were able to catch up to FIIs in terms of equity investments in 2023 as they were more consistent, and divested in only one month compared to a four-month outflow by FIIs.
Sunil Singhania, a superstar investor and founder of Abakkus Asset Manager, says “When it comes to FII flows my views are very positive. In the next two to three years, FII flows into India will be very high.”
In the equity market, FIIs’ cash segment activity was a major factor, influencing index movements. Of the four months that Nifty 50 went lower, three had FIIs withdrawing from the equity market.
When it came to futures and options, FIIs were net sellers with an outflow of Rs 6,319.8 crore and Rs 8.5 lakh crore, respectively.
FIIs divested in three of four months that Nifty 50 declined
In this edition of Chart of the Week, we take a look at the monthly FII/DII data on Trendlyne’s FII/DII dashboard and identify major trends.
Jan and Feb 2023 saw high FII outflows in equities
The equity markets began 2023 on a sour note, with FIIs taking out Rs 25,292 crore in January. This led to a 2.4% fall in the Nifty 50. However, a substantial Rs 1.2 lakh crore inflow into the options segment by FIIs led them to be buyers at Rs 91,618.4 crore. MFs were net buyers of equities with a total inflow of Rs Rs 21,353.2 crore in January 2023.
Equities overall saw major outflows in January, particularly in the financials and IT sectors, with consumer services, oil & gas, telecommunications, and auto sectors also seeing significant declines. Dr V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, pointed to profit booking as the key driver here. “The simple logic behind FII selling in January is that India is the only large market where FIIs are still sitting on good profits after the disastrous 2022 performance in most global markets.”
In February 2023, FIIs divested Rs 636.4 crore from the equities. This month also saw FIIs return to index options, buying Rs 65,336.3 crore expecting market volatility. Sector-wise, FIIs reduced their stakes in metals, power and oil & gas, while investing in the capex-heavy capital goods sector, motivated by the Rs 10 lakh crore capex investment announced in the union budget 2023. This was followed by a 2% fall in the Nifty 50. MFs were net sellers, with an outflow of Rs 515.1 crore in February 2023. This selling was partly induced by the Adani-Hindenburg case.
Adani stocks attract 25% of March 2023’s total FII inflow
In March 2023, FIIs invested Rs 12,578.2 crore in equities and MFs invested Rs 20,764.3 crore surpassing FIIs investment. The major chunk of FII buying, amounting to Rs 15,446 crore, was made by GQG Partners in four Adani Group stocks. This also led to a 31% sequential rise in MF inflows, according to AMFI.
FII investments continued in April 2023, with an inflow of Rs 15,733.4 crore in equities. FIIs turned overweight on the financials and automotive sectors, which constituted 50% and 14% of their total investment, respectively. On the other hand, MFs turned net sellers, with a total outflow of Rs 6,766.7 crore attributable to an outflow of Rs 4532.6 crore from the equity market.
In May, FIIs had an inflow of Rs 37,369.3 crore in equities and an outflow of Rs 40,036.6 crore in index options. MFs invested Rs 2,446.5 crore into the equities market and had an overall outflow of Rs 2,359.6 crore.
Financials sector sees fluctuating investment patterns
In June, FIIs invested Rs 43,310.8 crore in stocks, providing a positive boost to the market. MFs invested Rs 5,664 crore into the equities market. Mutual funds ended their two-month selling streak and re-emerged as overall net buyers with a total investment of Rs 514.6 crore. Most of the FII investment was done in the financial services, capital goods, and automobile sectors. According to Nirav Karkera, Head of Research at Fisdom, “The banking and financial services segment is large and fairly diversified into smaller, specific sectors. It saw FIIs and MFs reallocate funds from heavyweight banks to smaller banks and NBFCs.”
After significant inflows in previous months, FIIs turned sellers in the financial services and FMCG sectors. Their net purchases decreased in sectors like IT and capital goods, potentially influenced by rising bond yields, higher oil prices, and inflation concerns.
FIIs execute major sell-offs in options starting September
FIIs sold off Rs 18,893.8 crore in equities in September, driven by concerns over potential US Federal Reserve interest rate hikes to curb high inflation. The FIIs also began their options selling spree with a divestment of Rs 2.4 lakh crore. This sell-off was offset by MFs buying Rs 18,512.4 crore in equities.
In addition, Chinese stocks showed an uptick due to their previous market decline and government efforts like interest rate cuts. This drew FII focus from India to China.
FIIs continued their selling streak with a Rs 21,679.9 crore of shares divestment in October 2023. This led to a fall of 2.8% in the Nifty 50. But mutual funds invested Rs 16,916 crore in equities. The FII outflow was because of rising US treasury yields due to the Federal Reserve's hawkish interest rate stance, and market volatility from the Israel-Hamas conflict.
Both FIIs and MFs were net buyers of equity in November, with inflows of Rs 9,433.8 crore and Rs 17,654.3 crore, respectively. This led to FII holdings in Indian equities dropping to a 10-year low, due to the mass selling from August to October.
MFs, however, came to the rescue of Indian markets. According to ICICI Securities, MFs have adopted a more careful and focused strategy, favouring stable and promising sectors amid uncertainty. Healthcare, private banks, and auto saw substantial MF inflows, with multi-cap and mid-cap funds attracting the most attention.
In December 2023, FIIs were net equity buyers with an inflow of Rs 56,390.6 crore while MFs invested Rs 23,894.7 crore in equities.
The influx of funds into equities was on the back of record highs in major indices and a pause in Fed rate hikes. However, FIIs were net sellers overall with an outflow of Rs 2.9 lakh crore due to selling in index options. Mutual funds also broke their two-month selling spree and became net buyers, with an inflow of Rs 412.3 crore.