Retail investors often seek cues from market heavyweights—foreign portfolio investors (FPIs) or domestic institutional investors (DIIs)—to identify strong-performing sectors. As the final quarter of 2023 kicks off, we take a look at the sectors these institutional investors are betting on.
The heatmap identifies sectors with high FPI activity in 2023. The financial services sector was a favourite among FPIs,with a net investment of Rs 1,20,525 crore. In fact, from April to July 2023, FPIs put money into this sector for four consecutive months.
Oil & gas, on the other hand, had the highest FPI outflow of Rs 19,585 crore from January to September 2023. The FMCG sector saw cyclical FPI investments: an inflow of Rs 12,386 crore from March to July 2023, followed by an outflow of Rs 4,403 crore in August and September 2023, influenced by El Niño conditions and worries about rural consumption.
In the capital goods sector, FPIs were net buyers from February to September 2023, with an investment of Rs 34,184 crore. However, they shifted gears in September 2023, turning net sellers with a total outflow of Rs 14,764 crore.
FPIs invest the most in financial services and auto
Looking at these trends a little more closely, we start with the financial services sector, which kicked off the year on a low note. FPIs withdrew Rs 15,204 crore from the sector in January 2023 due to concerns over its exposure to Adani Group companies.
However, this soon reversed, with FPIs investing Rs 36,292 crore in the sector in 2023. Despite global challenges since March 2023, India's financial sector has remained stable with continuous growth in bank credit, falling non-performing assets, and high capital and liquidity reserves.
The capital goods sector ranks among the highest in FPI inflows for the year, drawing an investment of Rs 34,098 crore. This increase can be attributed to a 12% YoY growth in the order books for the top 30 engineering and construction (E&C) firms, reaching $161 billion in Q1FY24. This expansion was largely driven by substantial orders from the railway and road construction sectors due to an infra capex boost of 33% in the FY24 government budget.
Next is automobiles, attracting Rs 25,941 crore of net FPI investment from January to September 2023. According to Geojit, the Indian automobile industry is rebounding after a five-year slump, observing an uptick in passenger vehicle volumes and a recovery in commercial vehicle sales.
The consumer services sector isn't far behind, registering an inflow of Rs 9,837 crore till September 2023 since the start of 2023. The sector has risen 24.2% in the past six months.
The once-upbeat IT sector has struggled, with a net FPI outflow of Rs 9,805 crore this year due to recession fears in its key markets, North America and Europe. However, there was a small revival with an investment of Rs 1,886 crore in September 2023.
The power sector saw a net FPI outflow of Rs 9,731 crore in September 2023 due to profit-booking, as stocks like Power Grid Corp and Bharat Heavy Electricals hit record highs. The rise was due to a report by the Power Ministry stating that India’s power demand touched an all-time high of 234 GW on August 17 2023. Additionally, the centre plans to expand its thermal energy capacity by 25 GW to 30 GW.
FPIs are currently positive on the healthcare sector with a net investment of Rs 8,712 crore from April to September 2023. On the other hand, the FMCG sector had a net buying of Rs 6,832 crore YTD. According to Nuvama, this is due to falling input prices that led to rising margins from March to July 2023.
Lastly, the oil and gas sector saw a net selling of Rs 19,585 crore this year. Market volatility due to OPEC sanctions and geopolitical factors, such as supply chain disruptions due to the Israel-Hamas conflict, played a significant role in this trend. Brent Crude futures have risen by 9.2% YTD.
Mutual funds mirror FPI focus on banking & finance
J B Chemicals leads in MF investment, while Camlin tops in outflow
Domestic investors have also shown clear preferences over the past month, as Indian markets turned volatile. According to a Trendlyne screener, MFs invested the most in banking & finance (26 companies) followed by the auto sector (10 companies). Within banking & finance, Power Finance Corp saw the most significant spike in MF investment, surging by 350 basis points MoM. The stock recently made headlines for issuing a loan of Rs 1,229 crore to Assam Petrochemicals and rose 10% in the past month.
On the other hand, another screener tracking the highest outflows by DIIs highlights a steep decline in MF holdings for Camlin Fine Sciences, dropping 190 basis points in the past month.
While FPIs pulled out of power stocks, MFs strengthened their positions in companies like Power Grid Corp. It saw a 360 basis points rise in MF holdings in the past month. Meanwhile, DIIs scaled down investments in consumer services stocks such as Krsnaa Diagnostics by 70 basis points in the past month.
J B Chemicals and Pharmaceuticals’ MF holdings increased by 15.4 percentage points over the same period. This increase is due to the pharma company receiving US FDA approval for manufacturing and marketing the generic Doxepin Hydrochloride capsules on August 23, 2023. Mutual funds like Axis Growth Opportunities Fund, NJ Flexi Cap Fund, Invesco India and HSBC Small Cap were the leading investors in the stock.
Defence player Hindustan Aeronautics also saw a 6.8 percentage point MoM rise in MF holdings. The company’s order book, at Rs 81,784 crore as of July 2023, was aided by the centre's private indigenisation list. Restaurant Brands Asia, a restaurant player, also had a 5.3 percentage point surge in MF investments over the past month.
Despite FPIs funnelling Rs 763 crore into real estate companies, MFs reduced exposure to Phoenix Mills by 90 basis points. Similarly, banking & finance stocks like MCX and IDFC also saw declines in MF holdings, falling by 120 basis points and 140 basis points respectively in the past month
