FPIs continue buying cyclicals like capital goods, auto stocks while selling defensives in April

The Foreign Portfolio Investors (FPIs) infused a little over ₹5,400 crore into the Indian stock market during the first fortnight of April 2024 with their equity portfolio hitting a record high.

A majority of FPI inflows went into cyclicals and capital-intensive stocks as they continued buying stocks in the power, financials, industrials, autos, telecom, realty sectors, etc. FPIs largely sold defensives, IT and FMCG, for the fortnight ending April 15, data from National Securities Depositories Ltd (NSDL) showed.

Meanwhile, FPIs’ asset under custody (AUC) or equity portfolio in the Indian equity market rose to a record high of ₹64.76 lakh crore or $776.22 billion as of April 15.

Also Read: FPIs offload ₹5,254 crore in Indian equities on high US bond yields, turn net sellers in debt markets

This period of April 1 - 15 coincided with the escalation in geopolitical risks with Israel’s attack on April 1 and Iran’s on April 13, and surge in US bond yields that jumped 50 bps to 4.7% on ‘higher for longer’ interest rate narrative.

“This atypical behaviour of beta outperforming in a rising global risk environment emanates from an improving near-term growth outlook for domestic cyclicals versus defensives like IT and FMCG,” said ICICI Securities analysts Vinod Karki and Niraj Karnani in a note.

FPIs buying in financials over the fortnight ending April 15 was augmented by the block deal in Axis Bank. This trend of other foreign investor selling absorbed by FPIs and Mutual Funds has been observed over CY23 as well, they noted.

Also Read: Will rising US bond yields cause more FPI outflows from emerging markets? here's what experts say

As per NSDL data, FPIs inflows were highest in the Power sector at ₹5,143 crore between April 1 to 15, followed by inflows worth ₹3,212 crore in Financial Services and ₹1,713 crore in Consumer services sectors.

FPI buying in the Automobile and Auto Components sector was worth ₹1,679 crore, Telecommunications sector at ₹1,659 crore and Capital Goods sector at ₹1,228 crore, data showed.

On the contrary, FPIs selling was witnessed the most in the IT sector at ₹4,658 crore, followed by FMCG sector with ₹4,351 crore worth outflows.

Also Read: FY25 outlook positive for FPI inflows, but likely to see short-term volatility, say experts

As indicated in our earlier note (link), the three factors (size, beta and value) continue to outperform in an environment where growth is driven by investment rate

According to ICICI Securities’ analysts, breakout trends for Indian markets include continued factor outperformance of small size, beta and value, which reflects the texture of the economy wherein the ‘investment rate’ is on the verge of surpassing the 2012 peak of 34% with improving ICOR (productivity of capital) while NPA cycle continues to drop to a cycle low.

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