In FY24, a rising Indian equity market saw net foreign portfolio investment (FPI) inflows amounting to $25.3 billion (approx. two lakh crore), surpassing other emerging market peers, as reported in RBI’s ‘State of the Economy’. Sectors like capital goods, consumer services, automobiles, and financial services emerged as top choices for FPI investments, collectively accounting for over 60% of the total foreign inflows, according to NSDL data. This trend underscores the importance of FPI activity as a measure for retail investors seeking insights into strong-performing sectors.
In this Chart of the Week, we take a look at sectors with the highest FPI activity in FY24. Throughout the year, FPIs consistently poured money into capital goods companies, with a total inflow of Rs 46,935 crore. The consumer services sector was the second favourite among FPIs with a net investment of Rs 32,186 crore.
Metals and mining, on the other hand, witnessed the highest FPI outflow of Rs 8,531 crore in FY24. The FMCG sector saw cyclical FPI investments: an inflow of Rs 10,621 crore from April to July 2023, followed by a divestment of Rs 15,521 crore from August 2023 to February 2024, influenced by El Niño conditions and rural consumption worries.
Capital goods, auto and consumer services emerge as favourites
More than half of the total investment of around Rs 2 lakh crore by FPIs went into capital goods, auto and consumer services sectors. Capital goods companies have benefited from a robust order backlog and a steady inflow of fresh orders. This growth was supported by higher commodity prices and increased government infrastructure spending, as well as production-linked incentive (PLI) schemes.
Consumer services ranked second in FPI interest, with heavy inflows in the final two months, with FPIs purchasing stocks worth Rs 12,179 crore in February and March. Auto stocks also caught the attention of FPIs, attracting investments worth Rs 29,862 crore in FY24. This was propelled by strong OEM sales, new product launches, and favourable raw material prices, all of which gave profit margins a boost.
The financial services sector was doing quite well until interest rates went steadily higher and the RBI tightened loan requirements in November 2023. The sector observed mixed FPI inflows, with inflow of Rs 51,947 crore in H1FY24, followed by an outflow of Rs 23,154 crore in H2FY24. In the past year, public sector banks also garnered attention as analysts highlighted their cheap valuation compared to private banks.
Healthcare and Telecom witness rapid expansion amid positive consumer sentiment
The healthcare sector, comprising the pharma and hospitals industry, witnessed an inflow of Rs 16,687 crore in FY24. The pharma industry's growth was driven by international market launches, steady domestic operations, and improved margins. Similarly, hospitals saw increased bed occupancy and growth in average revenue per occupied bed, alongside steady capacity additions, leading to higher net income and revenue visibility.
FPIs were net buyers worth Rs 15,277 crore in the telecom sector in FY24, supported by healthy subscriber additions and a gradual uptick in average revenue per user (ARPU). However, sector performance consolidated due to marginal expansion in ARPU, due to the absence of price hikes in the past year. Also, added capex costs with the 5G rollout and network densification kept debt levels elevated giving rise to higher finance costs.
IT and FMCG sectors see muted investment
FPIs injected a net amount of Rs 5,931 crore into the information technology (IT) sector in FY24. This inflow is comparatively lower than other sectors as hiring at IT companies was at all-time lows during the past year, as margins grew stressed and clients renegotiated contracts. Indian tech firms, particularly IT services companies, faced pressure due to their reliance on the slowing North American market for over 60% of their revenue.
The FMCG sector also saw muted investor interest as FPIs added stocks worth Rs 1,341 crore in FY24. Topline growth remains muted due to subdued demand, particularly in the mass end of the segment. Lower crop yields after a below-average monsoon have affected rural demand.
Oil and metals sectors see net FPI outflow in FY24
The oil & gas sector saw a net selling of Rs 5,774 crore in FY24. Market volatility resulting from OPEC cuts and geopolitical factors, such as supply chain disruptions due to the Israel-Hamas conflict and drone attacks on Russian oil refineries by Ukraine, contributed significantly to this trend. Brent Crude futures have risen by 13.4% year-to-date.
Lastly, the metals and mining sector saw the highest FPI outflow of Rs 8,531 crore in FY24. Indian companies in this sector face major hurdles because of the dumping of steel at cheaper rates and sub-standard imports from China. Here, dumping refers to an abrupt increase in supply, which was seen from April to July 2023, where steel imports from China to India rose 62% YoY. However, the government took measures to curb Chinese imports in September 2023, where they imposed a five-year anti-dumping duty targeting specific types of Chinese steel. Anti-dumping duty is a tax levied on imported goods that the government believes are priced below fair market value. The industry is also expected to address production gaps in 2024 and reduce dependence on imports, supported by policy reforms, incentives, and large-scale expansion plans by industry giants such as Tata Steel, Vedanta, and JSW Steel.
These FPI trends in different sectors reflect both global economic factors and sector-specific challenges in India, highlighting the importance of understanding market dynamics for investors to make better investment decisions. Looking ahead, developments in sectors such as IT, finance and FMCG will be closely watched, as they navigate through higher interest rates and volatile customer spending.
