May 22, 2020

India Strategy

FPI outflow concerns ease on India’s CAD, ‘big bang QE’ and new FPI limits

Please refer to important disclosures at the end of this report

May 22, 2020

Research Analyst:

Siddharth Gupta, CFA

siddharth.gupta@icicisecurities.com

+91 22 2277 7607

Research Analyst:

Vinod Karki

vinod.karki@icicisecurities.com

+91 22 6637 7586

ICICI Securities Limited is the author and distributor of this report

2May 22, 2020

Inflows into MF equity schemes resilient in extreme volatility

Institutional flows outlook: Macro-economic stability does not require portfolio inflows currently as CAD moves into surplus

zone. Liquidity measures by central banks are likely to continue till recessionary trends remain which is positive for EM flows.

Alignment of earlier FPI limits with FDI sectoral limits to result in additional FPI flows for India. Having shown resilience during

the worst volatility, DII flows will continue to be positive. However, growth concerns due to COVID-19 and limited fiscal

stimulus so far will keep equity flows and risk assets under check for India.

FPI outflows a lesser worry as CAD* set to move into surplus zone: FPI outflows was amongst the bigger concerns during

Global financial crisis (GFC) and ‘Taper Tantrum’ for India, as CAD was high which exacerbated the impact of sharp portfolio

out flows on macro-economic stability. However, India’s CAD in FY21 is set to enter surplus zone (0.2% of GDP for Q3FY20)

given the sharp decline in domestic consumption expenditure and oil prices. A Current Account Surplus implies that, foreign

flows will not be absorbed in the domestic economy and only result in RBI’s forex reserves and holding of low-return US

treasuries to rise . Nevertheless, behavior of remittances remains a key risk to CAD. Key identity: Financial flows = CAD +

Change in forex reserves.

Instant ‘big bang QE’ by global central banks has prevented second order panic selling of risk assets; Apr’20 outflows

have reduced significantly for EMs: QE of ~ US$4tn in a matter of two months by the US FED, ECB and BOJ.

Passive funds investing in EMs could see their India allocation rise as the FPI limit for all Indian stocks raised to their

sectoral FDI limit from 1st April’20. Most sectoral FPI holding limit raised to 100% under the automatic route except for the

following which are largely under government route; PSU banks (20%), Private banks (74%), Insurance (49%), Multibrand

retail (51%), Print media (26%), & TV media (49%). Foreign institutions currently hold ~28% of Indian equities, leaving enough

headroom for further investment.

Domestic equity flows resilient throughout the highest volatility period: Net inflows into domestic mutual funds have

continued to remain positive through the period of highest volatility. Apr’20 saw lower inflows at Rs67bn, led by lower inflows

into index, focused, multi-cap and midcap funds (Slide 4). SIP flows continue to remain robust at Rs83bn

What happened in April’20:

While overall FPI selling moderated, selling continued in most sectors such as financials (ex-banks) (Rs20bn), Auto

(Rs19bn), Industrials (Rs17bn), Pharma (Rs16bn), and IT (Rs13bn) and utilities(Rs11bn). Buying was seen in in banks

(Rs12bn), energy (Rs13bn), and consumer staples (Rs29bn).

As a percentage of FPI AUM, largest buying was seen in staples (1.5%), Media (1.4%), and Energy (0.6%). Selling was

highest in Metals (2.8%), Auto (2.2%), Airlines (1.7%), and utilities (1.6%) and pharma (1.5%)

While MFs were net sellers during the month (Rs58bn), the selling was concentrated towards sectors such as banks

(Rs39bn) and financials (Rs11bn), consumer staples (Rs36bn) and industrials (Rs14bn).

*CAD – Current Account Deficit

3May 22, 2020

FPI outflows a lesser worry as CAD* set to move into surplus zone

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

Ma

r-12

Ju

n-1

2

Sep

-12

Dec-1

2

Ma

r-13

Ju

n-1

3

Sep

-13

Dec-1

3

Ma

r-14

Ju

n-1

4

Sep

-14

Dec-1

4

Ma

r-15

Ju

n-1

5

Sep

-15

Dec-1

5

Ma

r-16

Ju

n-1

6

Sep

-16

Dec-1

6

Mar-

17

Jun-1

7

Sep

-17

Dec-1

7

Ma

r-18

Ju

n-1

8

Sep

-18

Dec-1

8

Ma

r-19

Ju

n-1

9

Sep

-19

Dec-1

9

Δ Reserve Assets to GDP (%) CAD (% of GDP), Quarterly FDI + FPI flows to GDP (%)

Stressed external sector plus financial outflows

FPI outflows a lesser worry as CAD* set to move into surplus zone: FPI outflows was amongst the bigger concerns during

GFC and ‘Taper Tantrum’ for India, as CAD was high which exacerbated the impact of sharp portfolio out flows on macro-

economic stability. However, India’s CAD in FY21 is set to enter surplus zone (0.2% of GDP for Q3FY20) given the sharp decline

domestic consumption expenditure and oil prices. A Current Account Surplus implies that, foreign flows will not be absorbed in

the domestic economy and only result in RBI’s forex reserves and holding of low return US treasuries to rise . However, behavior

of remittances remain a key risk to CAD. Key identity: Financial flows = CAD + Change in Forex reserves.

Source: Bloomberg, I-Sec research

4May 22, 2020

Domestic equity flows resilient throughout the highest volatility period

Source: AMFI, I-Sec research

Equity flows into MFs continue despite volatile markets

Net FlowAUM

Apr'20Category and Sub-

category Apr'19 May'19 Jun'19 Jul'19 Aug'19 Sep'19 Oct'19 Nov'19 Dec'19 Jan'20 Feb'20 Mar'20 Apr'20

Equity Oriented schemes 42 52 76 82 94 68 68 9 46 77 112 136 67 6,970

Multi Cap Fund 19 6 18 3 16 17 13 2 5 17 16 23 12 1,296

Large Cap Fund 0 1 15 19 26 16 12 12 11 12 16 21 17 1,303

Mid Cap Fund 5 13 8 14 11 13 11 8 8 18 15 12 5 744

Small Cap Fund 10 14 9 8 13 9 7 3 4 11 15 2 4 405

Focused Fund 2 12 7 19 8 4 6 5 18 13 15 20 7 448

Large & Mid Cap Fund 0 3 5 7 6 3 5 -3 3 7 8 9 3 492

Value /Contra Fund 0 0 0 0 3 0 -2 -10 -8 -7 -4 8 1 455

Sectoral/Thematic 6 1 9 3 2 -1 4 -6 -2 0 19 8 4 568

Index Funds 0 2 2 2 3 3 8 0 1 1 5 21 6 100

Income / Debt 1,021 681 -1,736 591 897 -1,618 1,205 510 -780 1,090 -292 -1,947 344 12,350

Overnight Fund 1 23 -41 60 -5 -16 57 206 -89 227 -15 267 26 830

Liquid Fund 898 686 -1,524 454 794 -1,407 932 69 -712 597 -438 -1,100 688 4,054

Ultra Short Duration Fund 110 12 -19 6 28 -68 62 8 -25 82 0 -291 -34 691

Low Duration Fund 49 -24 -47 -2 8 -21 31 46 -16 56 32 -199 -68 745

Credit Risk Fund -13 -42 -27 -34 -23 -24 -14 -19 -12 -12 -6 -56 -192 352

Hybrid / Other -59 37 63 198 34 32 62 24 116 35 159 -316 49 4,615

Other ETFs -43 24 54 124 -17 10 59 30 127 19 163 48 -2 1,641

Balanced /Aggressive

Hybrid Fund -21 -25 -19 7 -9 -19 -20 -49 -20 -13 -12 -15 -9 1,099

Arbitrage Fund 15 46 32 58 57 48 26 54 6 17 -4 -338 66 587

Equity Savings -7 -8 -5 -2 -6 -6 -5 -8 -4 -4 -6 -8 -5 114

Total MF 1,005 770 -1,598 871 1,025 -1,518 1,335 544 -618 1,201 -20 -2,127 460 23,935

5May 22, 2020

SIP flows have stayed robust through market volatility

Source: AMFI, I-Sec research

0

10

20

30

40

50

60

70

30

40

50

60

70

80

90Jan

-17

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r-17

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Jul-

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No

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Jan

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Jan

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Jul-

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9

No

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9

Jan

-20

Ma

r-20

Ma

y-2

0

Rs

bn SIP Vix average

6May 22, 2020

Instant ‘big bang QE’ by global central banks has prevented the second order panic selling

This time round, monetary stimulus has kicked in along with

the selloff

FPI trailing 30D flow in current period – increase in Central

bank assets marked the bottom for India flows

Source: Bloomberg, CEIC, I-Sec Research

While the selloff of the global financial crisis started in

Jan’08, monetary stimulus came in Oct’08 onwards

Source: Bloomberg, I-Sec research Source: Bloomberg, I-Sec research

500

700

900

1100

1300

1500

1700

1900

2

3

4

5

6

7

Oct-

07

Nov-0

7

Dec-0

7

Jan

-08

Feb-0

8

Mar-

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Ap

r-08

May-0

8

Jun

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Jul-0

8

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Oct-

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Nov-0

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Dec-0

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Jan

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09

Ap

r-09

US

D t

n

Central Bank ASsets (Fed + ECB + BOJ)

MSCI World (RHS)

1500

1700

1900

2100

2300

2500

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15

16

17

18

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Central Bank Assets (Fed + ECB + BOJ)

MSCI World (RHS)

-10

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0

FPI Debt FPI Equity

-1 -2-5

-10

-17

-21-24

-0.7 -0.6-2.1 -1.2

0.3

-6.5

0.91 0

-1 -1

1

-2 -4

(30)

(25)

(20)

(15)

(10)

(5)

0

5

Indonesia

So

uth

Afr

ica

Thaila

nd

Bra

zil

India

So

uth

Kore

a

Taiw

an

(US

$ b

n)

Mar'20 Apr'20 May'20

EM Equity outflows have reduced considerably vs Apr’20

7May 22, 2020

India equity and debt flows improve, MF deployment reduces

FPI flows dipped sharply in Mar’20

Source: Bloomberg, I-Sec research

CY19 saw positive FPI flows

Source: Bloomberg, I-Sec research

(30)

(20)

(10)

-

10

20

30

40

50

CY

11

CY

12

CY

13

CY

14

CY

15

CY

16

CY

17

CY

18

CY

19

CY

20

(US

$b

n)

FPI Debt FPI Equity Total FPI

Steady deployment from MFs since 2014 saw a dip in 2019… Trailing 30D flows for DIIs tapering

Source: Bloomberg, I-Sec research Source: Bloomberg, I-Sec research

(0) (1) (1)

0

(0)

3 3 2

3

(1)

(6)

1

(4) (4)

4

11

7

18 18

7

4

(10)

(5)

-

5

10

15

20

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

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200

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201

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1

201

2

201

3

201

4

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5

201

6

201

7

201

8

201

9

202

0

$b

n

MF

-3

-1

1

3

5

7

9

Jan

-19

Feb-1

9

Mar-

19

Ap

r-19

Ma

y-1

9

Jun

-19

Jul-1

9

Au

g-1

9

Se

p-1

9

Oct-

19

Nov-1

9

Dec-1

9

Jan

-20

Fe

b-2

0

Mar-

20

Ap

r-20

Ma

y-2

0

MF DII

-1.6

0.51.2

1.21.6

-0.3

0.7

-0.4 -0.8-1.6

0.0

-8.2

-1.6-2.4

1.5 1.4

0.1

-1.9-2.2

1.0

2.13.1

0.9 1.3 0.4

-8.4

0.0

1.1

(10)

(8)

(6)

(4)

(2)

0

2

4

Ap

r-19

May-1

9

Jun

-19

Jul-1

9

Au

g-1

9

Se

p-1

9

Oct-

19

Nov-1

9

Dec-1

9

Jan

-20

Feb-2

0

Mar-

20

Ap

r-20

May-2

0

(US

$ b

n)

FPI Debt FPI equity flow

8May 22, 2020

FPIs were net buyers in Staples, Energy and Banks

Banks and Energy saw a reversal in flows, while slowing selloff in

staples turned to buying.

Note: ‘Others’ refers to companies that haven’t been classified under any sector by the BSE when the list

was last updated by NSDL. These typically refer to newly listed companies.

A large portion of net flows for Jan’20 was invested in ‘Others’.

Source: NSDL, I-Sec research

(Rs bn)

Financials, Auto and Industrials were the top sells

Sector Q4F19 Q1F20 Q3F20 Q4FY20 Feb Mar Apr

Banks 148 16 207 -162 -15 -137 12

Industrials -1 -5 -32 -93 -26 -64 -17

Consumer Staples 10 -4 -37 -83 -30 -36 29

Other financials 82 90 26 -66 -1 -62 -20

Energy 79 49 93 -55 13 -98 13

Auto -16 17 -9 -46 -21 -36 -19

IT 10 -54 -6 -39 2 -62 -13

Pharma 32 -42 -15 -33 -12 -19 -16

Consumer Disc 3 -1 3 -29 -8 -15 -7

Metals -9 -13 2 -28 -4 -16 -6

Utilities 49 57 1 -22 2 -14 -11

Airlines 0 4 -2 -8 -3 -4 -1

Materials 7 4 -2 -6 -1 -2 -4

Real estate 0 -7 5 -5 -3 -2 -1

Media 9 5 52 2 0 -1 2

Insurance 77 78 97 8 2 6 -3

Telecom 14 -5 -29 18 7 -8 -5

Retail 4 -2 9 19 24 -5 -1

Others -29 129 86 148 90 -44 -1

Total 469 317 449 -480 18 -620 -6929

13

12

2

-1

-1

-1

-1

-3

-4

-5

-6

-7

-11

-13

-16

-17

-19

-20

-40 -20 0 20 40

Consumer Staples

Energy

Banks

Media

Retail

Others

Real estate

Airlines

Insurance

Materials

Telecom

Metals

Consumer Disc

Utilities

IT

Pharma

Industrials

Auto

Other financials

FII Apr, Rs bn

9May 22, 2020

FPI AUM and flow snapshot for Apr’20

FPI category wise AUM change Apr Flows vis-à-vis holdings:

Note: 1) Cateogry wise AUMs may also change due to recategorisation of funds.

2) FPI Flows and AUMs are based on detailed sectoral flows and AUC provided

by NSDL

Source: NSDL, I-Sec research

(Rs bn)(Rs bn)

Mar-20 Apr-20 Change

Category I 19,129 22,403 17.1%

Appropriately Regulated Fund 10,488 12,268 17.0%

Unregulated fund whose investment manager is

Category I FPI 1,736 2,020 16.3%

Pension Fund 1,697 1,931 13.8%

Sovereign Wealth Fund 1,336 1,555 16.4%

Entity controlled or at least 75% owned by Government

and Government related investor(s) 1,204 1,355 12.6%

Entity whose Investment Manager is Category I FPI

from FATF member country 1,103 1,484 34.5%

Category II 2,037 1,818 -10.8%

Appropriately regulated fund not eligible as Category-I

FPI 1,341 1,076 -19.7%

Others 269 257 -4.5%

Unregulated fund - Limited Partnership / Trust 259 296 14.4%

Corporate Body 127 140 10.7%

Endowment / Foundation 12 13 9.6%

Expired FPIs which have not been Recategorised 9 9 -0.5%

Total 21,176 24,230 14.4%

Sector

AUM

Mar-20

AUM

Apr-20

Apr-20

weight

Nifty

weight OW/UW

Flow

Apr-20

Flow as

% of prior

holding

implied

Return

Column A B

C=B/(Su

m:B) D E=C-D F G=F/A

H=B/(A*(

1+G))

Airlines 76 72 0.3 0.0 0.3 -1 -1.7% -3.8%

Auto 885 1,077 4.4 5.0 -0.6 -19 -2.2% 23.9%

Banks 4,112 4,654 19.2 25.9 -6.7 12 0.3% 12.9%

Consumer

Disc 832 873 3.6 3.3 0.3 -7 -0.8% 5.8%

Consumer

Staples 1,913 2,040 8.4 10.2 -1.7 29 1.5% 5.1%

Energy 2,069 2,677 11.0 13.9 -2.9 13 0.6% 28.7%

Industrials 1,323 1,485 6.1 5.4 0.8 -17 -1.3% 13.5%

IT 2,732 3,013 12.4 14.5 -2.0 -13 -0.5% 10.8%

Materials 307 370 1.5 0.6 1.0 -4 -1.3% na

Media 123 159 0.7 0.0 0.7 2 1.4% 28.2%

Metals 226 270 1.1 1.9 -0.7 -6 -2.8% 22.3%

Insurance 571 653 2.7 0.0 2.7 -3 -0.6% 15.0%

Other

financials 2,980 3,394 14.0 10.3 3.7 -20 -0.7% 14.6%

Others 112 111 0.5 0.0 0.5 -1 -0.5% -0.3%

Pharma 1,058 1,315 5.4 3.1 2.3 -16 -1.5% 25.8%

Real

estate 193 203 0.8 0.0 0.8 -1 -0.5% 6.0%

Retail 318 352 1.5 0.0 1.5 -1 -0.2% 10.7%

Telecom 652 755 3.1 3.2 0.0 -5 -0.7% 16.5%

Utilities 693 756 3.1 2.9 0.2 -11 -1.6% na

Total 21,176 24,230 100.0 0.0 -69 -0.3% 14.7%

10May 22, 2020

MF net selling concentrated towards Banking / FS and Staples

Banks and Staples saw a change in trend, while Industrials continued to be sold by

MFs

Note: MF sectoral flows are based on change in number of shares compiled using ACE MF, and average closing prices during the month. Being a very

volatile month, there is a higher potential error in this month’s numbers.

Other financials include Insurance till Sep’19

Source: Bloomberg, ACE MF, I-Sec Research

(Rs bn)

Buying continued in Auto, Healthcare, Utilities and

Cement

Sector All MFs ex-Govt ETFs

Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Feb-20 Mar-20 Apr-20 Feb-20 Mar-20 Apr-20

Utilities 47 -6 29 13 71 67 -11 4 18 21 5

Pvt banks 95 53 185 -48 123 28 74 -38 28 74 -39

Telecom -9 43 10 10 51 4 10 4 4 10 4

Industrials 51 28 36 12 26 20 -4 -15 15 -3 -14

Auto -6 2 1 28 57 25 30 13 25 30 13

Cons.

Staples 37 23 30 32 53 27 29 -36 27 29 -36

Cons. Disc. 32 16 25 15 21 5 1 4 5 1 4

Energy 26 -42 169 -8 87 62 66 0 19 80 0

Retail 1 4 10 -1 23 19 4 -2 19 4 -2

Cement -4 17 20 34 24 4 12 4 4 12 4

Metals 6 9 -1 -1 11 4 0 1 -2 2 0

Diversified 0 0 0 0 0 0 0 0 0 0 0

Other

financials* -3 -15 64 1 52 16 42 -11 16 42 -11

Healthcare -14 34 19 19 17 11 8 9 11 8 9

Real Estate 6 8 9 -2 7 6 2 0 5 2 0

Transportati

on -9 -2 5 15 19 4 14 2 3 15 2

Exchanges 1 0 -3 -1 2 0 0 0 0 0 0

Materials -3 -10 4 0 4 -1 2 1 -1 2 1

Insurance -8 8 2 10 4 2 10 4

PSU Banks 23 -14 -4 4 0 -2 2 1 -2 2 2

Media -1 -1 5 0 0 0 3 -4 0 3 -4

IT 6 0 12 -20 11 -12 41 1 -12 41 1

Total 283 149 625 95 668 289 336 -58 184 385 -58

13

9

5

4

4

4

4

2

2

1

1

0

0

0

0

0

-2

-4

-11

-14

-36

-39

-60 -40 -20 0 20

Auto

Healthcare

Utilities

Cement

Telecom

Cons. Disc.

Insurance

PSU Banks

Transportation

Materials

IT

Energy

Exchanges

Metals

Diversified

Real Estate

Retail

Media

Other financials*

Industrials

Cons. Staples

Pvt banks

Apr MF flow, Rs bn

11May 22, 2020

MF sectoral activity in Apr’20 – snapshot

Note: MF flows are based on change in number of shares compiled using ACE MF, and average prices during the month.

Source: Bloomberg, ACE MF, I-Sec Research

Sector Apr holding (Rs bn) MF weight NIFTY50 weight OW UW Net flow

Private banks 1,836 18.1 24.1 -6.0 -38

Industrials 792 7.8 3.2 4.6 -15

Financial Services 754 7.5 10.3 -2.9 -11

IT 904 8.9 14.5 -5.5 1

Energy 1,010 10.0 14.7 -4.7 0

Consumer Staples 706 7.0 10.2 -3.2 -36

Consumer Discretionary 571 5.6 2.9 2.7 4

Automobile & Components 575 5.7 5.0 0.7 13

Healthcare 815 8.1 3.1 4.9 9

PSU Banks 270 2.7 1.8 0.9 1

Utilities 358 3.5 2.1 1.4 4

Cement 267 2.6 1.6 1.0 4

Materials 257 2.5 0.6 2.0 1

Metals & Metals Products 206 2.0 1.9 0.2 1

Telecom 316 3.1 3.2 0.0 4

Insurance 173 1.7 0.0 1.7 4

Transportation 110 1.1 0.6 0.5 2

Real Estate 59 0.6 0.0 0.6 0

Trading 89 0.9 0.0 0.9 -2

Media 36 0.4 0.4 0.0 -4

Exchanges 12 0.1 0.0 0.1 0

unclassified 3 0.0 0.0 0.0 0

Total 10,118 100.0 100.0 0 -57.57

Change 13.3% -0.6%

Explained by flows -0.6%

Net performance 13.9%

Large Cap 7,485 74.0 -49

Mid Cap 1,723 17.0 -2

Small Cap 680 6.7 0

micro cap 150 1.5 -1

12May 22, 2020

Sectoral stance – FPIs and MFs

FPI Sectoral stance – Apr’20

Source: NSDL, IISL, I-Sec research

MF Sectoral stance – Apr’20

Source: ACEMF, IISL, I-Sec research

3.72.7 2.3

1.5 1.0 0.8 0.8 0.7 0.5 0.3 0.3 0.2

0.0 -0.6 -0.7-1.7 -2.0

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FPI OW UW

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0.0 0.0 0.1 0.1 0.5 0.6 0.8 0.9 0.9 0.9 1.01.7 2.0

2.8

4.6 5.1

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Healthcare

MF OW UW (Apr'20)

13May 22, 2020

Sectoral performance in Apr and May

Sectoral performance for Apr’20

Source: Bloomberg, I-Sec research

Sectoral performance for May’20

Source: Bloomberg, I-Sec research

30

%

25

%

18

%

17

%

17

%

17

%

13

%

12

%

12

%

11

%

8%

7%

6%

5%

0%

15

%

13

%

12

%

11

%

11

%

9%

15

%

15

%

13

%

11

%

9%

0%

5%

10%

15%

20%

25%

30%

35%

Ph

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Au

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En

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Me

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Infr

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Fin

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CI D

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CI E

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Sectoral performance

NSE / BSE Sector indices NSE Strategy indices

16

%

2%

-1%

-3%

-3%

-3%

-3%

-4%

-5%

-6%

-11

%

-12

%

-16

%

-17

%

-18

%

0%

-4%

-5%

-5%

-6%

-9%

-1%

-2%

-5%

-5%

-8%

-20%-15%-10%

-5%0%5%

10%15%20%

Te

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m

Ph

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Infr

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Au

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FM

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Me

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CI E

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Nifty

Sectoral performance

NSE / BSE Sector indices NSE Strategy indices

14May 22, 2020

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