Weekly Musings – FPI flows for week ended May 10, 2024

13 May 2024 , 12:57 PM

DIVERSE OUTCOMES IN A WEAK MARKET

The week saw some diverse outcomes in the market as far as the sectoral returns were concerned. At a macro level, all the indices were sharply lower. Of course, the correction was much sharper in the mid-cap and small cap indices as compared to the large cap indices. At the same time, the divergence was a lot more pronounced on the sectoral level and the sharp fall in the markets may not be too evident if one look at the sectoral indices. For instance, for the week ended May 10, 2024, the auto index and the FMCG index were sharply higher while the banking index and the oil & gas index were sharply lower. Only the IT index ended the week flat to marginally positive. But, why did that happen?

The banking index and the oil & gas index were led by selling in the frontline index stocks. HDFC Bank, ICICI Bank, SBI and Reliance saw some heavy offloading of positions in the week. Not surprisingly, this Bank Nifty index was down sharply by -3.07% while the oil & gas index fell sharply by -3.89% in the week. The sharp fall in oil prices to about $82/bbl was also a factor. On the other hand, the auto index gained 1.36% in the week as most of the auto numbers have been very strong in the quarter. Auto companies not only gained in terms of growth in volumes and pricing, but input costs also came down. The other gainer was the FMCG index which gained 1.85% in the week, after it was reported that rural sales had picked up sharply in volumes in the current quarter. Overall, it was a week of contrasts.

HOW NEIL KASHKARI FURTHER CONFUSED THE MARKETS

The governor of the Federal Reserve Bank of Minneapolis gave a rather cryptic speech during the week, as he opened up on the possibility of rate hikes from here. However, the caveat was that it would be done only if inflation really went out of control. However, one point on which Kashkari was quite emphatic was that rate cuts were ruled out for now. While he did indicate at the possibility of 2 rate cuts maximum in 2024, it was clear that such a move would totally predicate on the inflation showing signs of decisively moving towards the 2% mark. It remains to be seen how the markets react to this statement, but clearly, the CME Fedwatch still appears to be betting on 2 rate cuts in the year 2024.

MACRO FPI FLOW PICTURE UP TO MAY 10, 2024

The table captures monthly FPI flows into equity and debt for 2022, 2023, and 2024.

Calendar Month	FPI Flows Secondary	FPI Flows Primary	FPI Flows Equity	FPI Flows Debt/Hybrid	Overall FPI Flows
Calendar 2022 (₹ Crore)	(146,048.38)	24,608.94	(121,439.44)	(11,375.78)	(132,815.22)
Calendar 2023 (₹ Crore)	1,27,759.75	43,347.14	1,71,106.89	65,954.38	2,37,061.27
Jan-2024 (₹ Crore)	(28,863.89)	3,120.34	(25,743.55)	19,150.21	(6,593.34)
Feb-2024 (₹ Crore)	(3,194.72)	4,733.60	1,538.88	30,277.95	31,816.83
Mar-2024 (₹ Crore)	29,152.54	5,945.78	35,098.32	16,987.88	51,996.20
Apr-2024 (₹ Crore)	(23,331.04)	14,659.77	(8,671.27)	(7,588.75)	(16,260.02)
May-2024 (₹ Crore) #	(17,233.56)	150.85	(17,082.71)	285.47	(16,797.24)
Total for 2024 (₹ Crore)	(43,470.67)	28610.34	(14,860.33)	59,022.73	44,162.43
For 2024 ($ Million)	(5,194.40)	3,441.31	(1,753.09)	7,115.56	5,362.47
# – Recent Data is up to May 10, 2024

Data Source: NSDL (Negative figures in brackets)

FPIs were net sellers for the fourth week in a row, and the tempo of selling has substantially picked up in the current week. For instance, the week to August 19, 2024 had seen FPI outflows of $2.23 Billion amidst rising geopolitical risks. However, the week to April 26,2024 saw subdued FPI net selling of just about $126 Million and the week to May 03, 2024, also saw FPI net selling of $146 Million. The latest week to May 10, 2024 saw net FPI selling of $2.18 Billion, almost back to the same level seen 4 weeks ago. The FPI flows into the IPOs of Indegene Ltd, Aadhar Housing Finance, and TBO Tek will be effective in the coming week.

The week to May 10, 2024 saw FPIs turning net sellers in equity secondary markets but were net buyers debt markets. For calendar 2024 overall, FPIs were net buyers to the tune of $5,362.47 Million. For 2024 till date, FPIs net sold equities worth $(1,753.09) Million and were net buyers in debt to the tune of $7,115.56 Million. As of the close of May 10, 2024, the FPIs were still net sellers in secondary market equities worth $(5,194.40) Million, while the buying in IPOs compensated for that at $3,441.31 Million.

This is the fourth week in a row that FPI flows are under pressure. This week to May 10, 2024 saw net FPI selling of $2.18 Billion, almost equal to $2.23 Billion of selling seen 3 weeks back. In between the FPIs continued to be net sellers, albeit to a lesser extent. This time around, the sharp sell-off by FPIs can be largely attributed to the rising wave of political uncertainty in India and the spike in VIX, which had briefly crossed the 19-mark in the previous week. However, there are also fundamental valuation concerns on India.

FPI SENTIMENTS – THE WEEK THAT WAS

For the latest week to May 10, 2024, FPIs were net sellers to the tune of $2,184 Million, after seeing rather subdued net FPI selling of $145.71 Million and $125.51 Million in the two weeks prior to that. Here are 6 key data points that influenced FPI flows this week.

• FPI selling was the dominant theme of the week with FPIs selling nearly $2.2 Billion in the week, with the last 3 days of the week seeing heavy FPI selling. While the domestic players like the mutual funds and LIC continued to be net buyers, they could not do much to change the market sentiments. There have also been some concerns over the shift of FPI money out of India into other emerging markets like China and Hong Kong, which were looking very undervalued on a relative valuation basis. For now, the political uncertainty appears to be the major driver of negative flows. The general expectation is that the NDA may not get as decisive a majority as they had originally envisaged.
• Why has political uncertainty become such an issue. Ahead of the elections, the general street expectation was that the ruling NDA would get over 400 seats in the Lok Sabha. That was like a vote for the continuation of the reforms process. However, the first few rounds have apparently given a different sort of feedback for the ruling NDA. The markets continue to expect that there would be a stable government at the centre, but the recent spike in VIX in the market in the last few weeks tells a rather contrasting story. That has been one of the factors spooking the market.
• The index of industrial production (IIP) growth for March 2024 and for fiscal year FY24 were announced on the last day of the week. The yoy IIP for March 2024 came in lower at 4.9% compared to 5.6% in February. However, the FY24 IIP growth stood at 5.80% compared to 5.90% in the previous year. More importantly, the manufacturing IIP for March on a MOM basis was sharply higher than February showing that most of the recent momentum appears to be favouring the manufacturing sector.
• Neil Kashkari of the Minneapolis Fed, in a recent speech, underlined that rate cuts were still some time away. He presented 3 scenarios wherein, the rates could either be static, they could be increased, or they could be cut. He assigned the biggest probability for the rates to remain static for the rest of the year. However, he did not rule out the possibility of the rates being cut, but did not see more than 2 rate cuts even in a best case scenario. Rate hikes were a remote possibility but Kashkari hinted that if inflation persisted at higher levels, then the Fed may not have much option but to hike rates.
• In a rather surprising move, JP Morgan upgraded the rating of Kotak Mahindra Bank to a BUY, after the price correction had made the stock more attractive on valuation terms. This comes at a time when most of the global brokerages have been downgrading Kotak Mahindra Bank to SELL. Interestingly, JP Morgan saw a 34% upside in the stock of Kotak Mahindra, which would effectively take the bank back to its previous highs. JPM was of the view that after the stellar numbers reported by Kotak Bank in the last quarter, most of the downside risks of the ban on new 811 accounts may have been factored in..
• SEBI has ruled out any extension of market trading timings for now. The proposal was put up by NSE asking for extension of trading hours for equities and F&O on the same lines as in commodities. Today, commodity markets function till late in the night, allowing traders to hedge their position for most evening risks. However, the two principal exchanges could not arrive at a consensus on the extension of market timings and hence SEBI has not accepted the request as of now.

With the Q4 results season almost done, the action shifts largely to the political situation and the outcome of the elections. That will be the big story now.

DAILY FPI EQUITY FLOWS FOR LAST 4 ROLLING WEEKS

Here is the last 4 rolling weeks data on FPI flows as it shows us a time series moving average of FPI flows.

Date	FPI Flow (₹ Crore)	Cumulative flows	FPI Flow($ Million)	Cumulative flow
15-Apr-24	-7,937.77	-7,937.77	-952.09	-952.09
16-Apr-24	-3,233.48	-11,171.25	-387.51	-1,339.60
17-Apr-24	0.00	-11,171.25	0.00	-1,339.60
18-Apr-24	-3,264.73	-14,435.98	-390.99	-1,730.59
19-Apr-24	-4,163.15	-18,599.13	-498.48	-2,229.07
22-Apr-24	772.77	-17,826.36	92.52	-2,136.55
23-Apr-24	-2,619.00	-20,445.36	-313.98	-2,450.53
24-Apr-24	-3,458.12	-23,903.48	-414.76	-2,865.29
25-Apr-24	4,227.19	-19,676.29	507.47	-2,357.82
26-Apr-24	26.94	-19,649.35	3.24	-2,354.58
29-Apr-24	-2,372.84	-22,022.19	-284.72	-2,639.30
30-Apr-24	5.53	-22,016.66	0.66	-2,638.64
01-May-24	0.00	-22,016.66	0.00	-2,638.64
02-May-24	1,851.02	-20,165.64	221.63	-2,417.01
03-May-24	-695.00	-20,860.64	-83.28	-2,500.29
06-May-24	-2,138.05	-22,998.69	-256.42	-2,756.71
07-May-24	-1,150.98	-24,149.67	-137.89	-2,894.60
08-May-24	-2,942.98	-27,092.65	-352.45	-3,247.05
09-May-24	-5,336.80	-32,429.45	-639.03	-3,886.08
10-May-24	-6,669.92	-39,099.37	-798.81	-4,684.89

Data Source: NSDL

FPIs have now been net sellers for 4 weeks in a row, although the last 2 weeks only saw subdued selling, but the latest week saw heavy FPI selling. In the recent 4 weeks, FPIs have been net sellers of $2,184 Million, $146 Million, $126 Million, and $2,229 Million respectively. The uncertainty in the market is evident from the spike in VIX.

• In previous 5 rolling weeks, FPIs had seen net outflows of $146 Million, net outflows of $126 Million, net outflows of $2,229 Million, net inflows of $1,641 Million, and net outflows of $39 Million. The latest week to May 10, 2024 saw net FPI outflows of $2,184 Million from equities.
• If you look at the last 4 rolling weeks on a cumulative basis, total net FPI outflows from equities were at ₹(39,099) Crore or ($4,685) Million. This number has shifted recently to negative zone, and got accentuated this week. The week also saw buying by FPIs in debt.

TRIGGERS FOR FPI FLOWS IN COMING WEEKS?

There are some key triggers for FPI flows in the coming weeks to watch out for. The fiscal deficit update for FY24 is yet to be announced by the government. While the IIP update for March 2024 and for FY24 has been relatively positive, the coming week will see the US inflation and the India inflation being announced. Both will be key data points for the colour and direction of FPI flows.

However, the big risk for FPI flows continues to emanate from the rising political uncertainty. It is still not clear what shape this uncertainty will take, but the concerns have led to VIX spiking from 10 to near 20 levels in a short span of time. That is not too encouraging. There are also fears of valuation differentials being too high. For now, the hope is that things should normalize after the election outcome on June 04, 2024. That is still quite some time away!