FPIs offload equities worth ₹28,851 crore in January – financial services, oil & gas stocks account for 79% of it

• Foreign portfolio investors sold equities worth ₹28,851 crore in January, coinciding with a slide in the benchmark indices Sensex and Nifty.
• Financial services, and oil & gas sectors accounted for ₹22,800 crore or 79% of the total outflows during the month.
• Overall, FPI flows were negative in 15 out of the 24 sectors in January, according to data from the National Securities Depository (NSDL).

Foreign portfolio investors sold equities worth ₹28,851 crore in January, coinciding with a slide in the benchmark indices Sensex and Nifty. This is the largest FPI selling since June 2022, when the tide turned and FPIs became net buyers in Indian equities.

Financial services, and oil & gas sectors accounted for ₹22,800 crore or 79% of the total outflows during the month. The sell-off in the oil & gas sector is not new or surprising – FPIs had sold oil & gas stocks worth ₹9,839 crore in the second half of 2022.

However, the reversal in the financial services sector is new – FPIs bought equities worth ₹24,256 crore in this sector alone in the last six months of 2022. They were also net buyers in four out of six months during this period.

Overall, FPI flows were negative in 15 out of the 24 sectors in January, according to data from the National Securities Depository (NSDL).

According to analysts, concerns about the exposure of Indian banks to the Adani Group were behind the FPI selloff in the financial services sector.

“Banking stocks were impacted on fears of Adani exposure impacting banks. But the RBI message that the Indian banking system is healthy improved sentiments leading to a late rally in banking stocks,” said Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Since the Hindenburg report on the Adani Group was released on January 24, stocks of the state-run Life Insurance Corporation of India, State Bank of India and others have witnessed a selloff.

While SBI’s stock fell 6.9% between January 24 and January 31, Life Insurance Corporation of India’s stock declined nearly 7%. Likewise, HDFC Bank shares fell 5.4%, while ICICI Bank’s stock fell 4.7%.

FPIs are shorting Indian equities and going long on other ‘attractive’ markets

While the Adani Group’s rout in the aftermath of the Hindenburg report has played its part, analysts believe FPIs are also flocking to other “attractive” markets and shorting Indian equities.

“FPIs are selling in India and buying in cheaper markets like China, Hong Kong and South Korea where valuations are attractive. This “short India and long other cheaper markets” strategy has led to big underperformance of the Indian market, so far this year,” Vijayakumar added.

“FPIs continued to sell Indian stocks as portfolio reallocation continued from India to China,” said Anindya Banerjee, VP - Currency Derivatives & Interest Rate Derivatives at Kotak Securities.

As a result of the FPI selloff, Indian equity markets have performed poorly in January when compared to their Asian peers.


Source: Morning Star

The FPI selloff in January also put pressure on the Indian rupee, which lost the gains it had made halfway through the month, falling below the 81-level for the first time since November, to closing the month at 81.77.

FPI holdings at multi-year lows, but outlook conducive

Overall, FPI holdings of aggregate Indian equities fell to a multi-year low of 17%, according to a report by ICICI Securities.

Despite this, the brokerage says that the investment climate in emerging markets like India is conducive for foreign investors.

“Outlook for FPI flows towards EMs in general and India in particular remains conducive given relatively higher growth and rising probability of an end to the aggressive quantitative tightening (QT) cycle,” the brokerage said.

However, it echoed the sentiments of other analysts, saying that the relatively expensive valuations of Indian markets are currently a key constraint to FPI inflows.

Robust inflows from domestic institutional investors (DII) are helping sustain the markets for now – DIIs pumped in ₹33,412 crore in Indian equities in January 2023 even as foreign institutional investors sold stocks worth ₹41,465 crore.

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