FPI flows have been highly volatile in the last few months. After FPIs sold close to $34 billion between October 2021 and June 2022, July 2022 offered a small turnaround. However, the big shift happened in August with FPIs infusing $6.44 billion into Indian equities. But, after two promising months, FPIs again ended up net sellers in the month of September 2022. In fact, FPIs were net buyers in the first 3 weeks of September but sold $2.3 billion of equities in the last week and ended as net sellers.
In the month of October 2022, the FPI flows were flat. However, two things stood out. Firstly, FPIs started out selling aggressively in equities but turned into net buyers in the second half. The second trend is more important. It marked the return of IPOs as an asset class as the FPIs showed a lot of enthusiasm in investing in the IPOs, both as anchor investors and as QIB investors. In fact, the positive flows into IPOs largely offset the outflows from secondary market equities. That makes the month of October 2022 special.
However, the IPO story only captures part of the reason for the shift. There are two other factors that led to a shift in sentiments. Firstly, Bloomberg has reported that India’s inflation may be overstated if the impact of the free food program is factored in. That would reduce the consumer inflation by about 1.5% and change the entire equation of real returns. The second big shift is on outsourcing. From Foxconn to TSMC to Airbus; they are looking at India as the next big story in outsourcing manufacturing. After all, this is their opportunity to diversify their supply chain dependence on China.
October 2022 FPI flows: Neutral on equities, sellers in debt
The table below captures monthly FPI flow trends in equity and debt since October 2021.
Month | FPI – Equity | FPI – Debt | Net Flow | Cumulative Flow |
Oct-21 | -13,549.67 | 1,272.16 | -12,277.51 | -12,277.51 |
Nov-21 | -5,945.10 | 3,448.49 | -2,496.61 | -14,774.12 |
Dec-21 | -19,026.06 | -10,407.62 | -29,433.68 | -44,207.80 |
Jan-22 | -33,303.45 | 3,080.26 | -30,223.19 | -74,430.99 |
Feb-22 | -35,591.98 | -2,586.30 | -38,178.28 | -1,12,609.27 |
Mar-22 | -41,123.14 | -8,876.35 | -49,999.49 | -1,62,608.76 |
Apr-22 | -17,143.75 | -5,613.91 | -22,757.66 | -1,85,366.42 |
May-22 | -39,993.22 | 3,537.04 | -36,456.18 | -2,21,822.60 |
Jun-22 | -50,202.81 | -1,327.34 | -51,530.15 | -2,73,352.75 |
Jul-22 | +4,988.79 | -2,840.97 | +2,147.82 | -2,71,204.93 |
Aug-22 | +51,204.42 | +6,841.71 | 58,046.13 | -2,13,158.80 |
Sep-22 | -7,623.66 | +2,556.67 | -5,066.99 | -2,18,225.79 |
Oct-22 | -8.29 | -2,770.66 | -2,778.95 | -2,21,004.74 |
Grand Total | -2,07,317.92 | -13,686.82 | -2,21,004.74 |
Data Source: NSDL (all figures are Rupees in crore)
To begin with, the month of October 2022 was neutral in terms of FPI equity flows. That is much better than the disappointment of September, when FPIs sharply turned into net sellers in the last week of the month. Here are some key takeaways from FPI flows in the month of October 2022
The month of November and December would be critical for FPI flows as these months will see the big boost to Fed rates. It remains to be seen if it results in genuine outflows from emerging markets due to rate differentials.
Did FPI sentiments change for the better in October 2022?
That remains a million dollar question, but there are signals that some factors, short term and long term, may have worked in favour of FPI flows into India.
Story of FPI equity flow trend in October 2022
The table below gives a granular encapsulation of the daily flows into Indian equities in the month of October 2022; both in rupee and dollar terms.
FPI Flow Date |
FPI Flows (Rs Crore) |
Cumulative flows (Rs Crore) |
FPI Flow ($ billion) |
Cumulative flow ($ billion) |
03-Oct-22 | -1,522.48 | -1,522.48 | -186.69 | -186.69 |
04-Oct-22 | 1,277.60 | -244.88 | 156.30 | -30.39 |
06-Oct-22 | 1,936.08 | 1,691.20 | 237.77 | 207.38 |
07-Oct-22 | 749.29 | 2,440.49 | 91.71 | 299.09 |
10-Oct-22 | -3,908.08 | -1,467.59 | -474.28 | -175.19 |
11-Oct-22 | -765.05 | -2,232.64 | -92.84 | -268.03 |
12-Oct-22 | -3,761.17 | -5,993.81 | -456.50 | -724.53 |
13-Oct-22 | -357.26 | -6,351.07 | -43.44 | -767.97 |
14-Oct-22 | -1,106.63 | -7,457.70 | -134.29 | -902.26 |
17-Oct-22 | -515.40 | -7,973.10 | -62.55 | -964.81 |
18-Oct-22 | -184.04 | -8,157.14 | -22.33 | -987.14 |
19-Oct-22 | 858.06 | -7,299.08 | 104.35 | -882.79 |
20-Oct-22 | -380.63 | -7,679.71 | -46.21 | -929.00 |
21-Oct-22 | 1,687.32 | -5,992.39 | 202.79 | -726.21 |
25-Oct-22 | 576.37 | -5,416.02 | 69.56 | -656.65 |
27-Oct-22 | 331.05 | -5,084.97 | 40.00 | -616.65 |
28-Oct-22 | 3,498.91 | -1,586.06 | 424.68 | -191.97 |
31-Oct-22 | 1,577.77 | -8.29 | 191.45 | -0.52 |
Data Source: NSDL
After a long and mixed month, the FPI flows were neutral for the month of October 2022 overall. However, if you look at the day-wise trend, the buying by the FPIs was a lot more prominent in the second half of the month. In fact, at one point the month selling stood at a negative $1 billion, but a combination of block buying by FPIs and IPO participation as anchors helped close the month of October on absolute neutral grounds.
Is this an official indication that the flow challenges may have ended? It would slightly premature, because a lot will depend on the Fed statement late on 02nd November and the follow up meeting of the RBI MPC on 03rd November. These two meetings would actually decide on the rate differentials between India and the US and push FPI flows accordingly. For now, despite concerns on the quarterly results and macros, there are some positive cues. Inflation may not be so high and the outsourcing story could be much bigger than what India originally envisaged. For now, the investors are betting that the outsourcing story could be a game changer for India. The next 2 months would be more crucial to the colour and trajectory of FPI flows.
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