What is it that foreign investors have been buying in the Indian markets in the last few months, including in the month of August?

While we would not get into the stock specific stories of the FPI trades, it is more useful to look at what are the sectors that FPIs are buying into. That would give a good picture of the colour of FPI flows. After all, FPIs did infuse $6.44 billion in August after taking out $33 billion between October 2021 and June 2022. August remains one of the best months in terms of FPI flows in recent memory and substantially if not fully, extenuates the impact of the FPI selling which had been consistent for 9 months in succession till June 2022.

If you were to put your finger on the pulse of FPI investment strategy, it is that they are preferring Indian domestic stories compared to globally driven stories. Companies which are likely to benefit from domestic demand and domestic markets have been preferred by the FPIs. At the same time, these FPIs are going relatively light on global stories that have greater level of dependence on global spending, or global consumption or even global industrial demand. Here how the buying panned out for FPIs in 2022.

Some of the preferred sectors for FPIs in 2022 were consumer discretionary, financials, industrials, FMCG and telecom. Let us look at consumer discretionary and FMCG first. Consumer discretionary sectors are likely to gain from higher levels of income and a sharp fall in inflation. In short, the affordability factor is going up. Regarding FMCG, it looks like an obvious choice for the FPIs as falling inflation means margins are more comfortable at an operating level. Also, the pricing power of FMCG majors is a big attraction for FPIs.

We now look at 3 more domestic plays viz. financials, industrials and telecom. Needless to say, financials have been the best proxy for India consumption story. There has been rising interest in insurance and NBFCs too. Industrials like L&T have been in great demand of late as an advance bet on the revival of capital investment cycle in India. It is high time it revives after a 10 year gap. Lastly, these FPIs see telecom as a play on growing digitization of the Indian economy as well as parallel revenue streams like OTT, digital leverage etc.

Finally, a quick look at some of the non-India stories that FPIs have been selling into. Oil & Gas is too vulnerable to global crude prices and global GRMs. That is a segment that FPIs have been selling out of. Indian IT has been a major sell for FPIs. Indian IT gets 80% revenues from the US, Europe and UK and all are vulnerable to a slowdown. Finally, FPIs are also going easy on metals and minerals where the China factor is looming in the horizon. Also, FPIs fell that a lot of the enthusiasm of the commodity cycle is already in the price.