Weekly Musings – FPI flows for week ended December 08, 2023

11 Dec 2023 , 07:18 AM

FPIs infuse record $2.01 billion in the week to December 08, 2023

If the GDP data and the global data points like PCE inflation and US GDP were the drivers of FPI flows last week, the lates week was the spill over effect. After infusing $2.2 billion in the previous week to December 01, 2023, the FPIs infused another $2.01 billion into Indian equities in the latest week. In short, the FPIs have infused $4.95 billion into Indian equities in the last 4 weeks of which $4.21 billion came in the last two weeks. That about sums up the story of how FPI flows into India have seen a turnaround in the last two weeks.

Till the previous month, the FPIs were net sellers in the secondary market but net buyers in the primary market. That trend has now changed for good as aggressive FPI buying is visible in the secondary markets and also in IPOs. Of course, debt flows in December 2023 continued at a robust pace with FPIs infusing Rs4,347 crore in the first week, on top of Rs15,546 crore infused into Indian debt in the month of November 2023. However, if you take calendar year 2023 till date, then FPIs have already infused Rs51,899 crore into debt. FPIs are clearing showing bullishness about Indian equity and also about Indian debt paper.

Big Story: RBI policy holds rates, upgrades GDP growth estimates

Even as the markets were starting to digest the actual implications of the India GDP reading, the smart core sector growth and the sharply positive cues from US growth and inflation, the impact was felt in the current week too. However, the action in the current week was lot about the announcement of the monetary policy by the RBI. Even through the monetary policy was announced only on Friday, the expectations were largely in sync. Markets were convinced that the RBI would hold repo rates at 6.5% and inflation estimates at 5.4%.

However, what the markets were really interested in was the growth upgrade. After the MOSPI had reported GDP growth of 7.8% in Q1 and 7.6% in Q2, the RBI GDP growth estimates of 6.5% looked too pessimistic to be true. The market consensus was already that the RBI would upgrade its GDP forecast for FY24 to around 7.0% and that is exactly what the RBI did. There were hopes that the RBI would change policy stance, but that was not to be.

What changed FPI sentiments in the week to December 08, 2023?

It was a truly sharp change of view; or how would you explain the FPIs infusing $2.01 billion into Indian equities in a single week, on top of $2.2 billion infused in the previous week. More importantly, there was a revival in secondary market equity inflows, even as primary flows and debt inflows remained robust. What explains the second week in succession that the FPI flows stayed so robust. There were actually 5 factors at play.

1. The big factor was the spillover effect of the previous week. The week to December 01, 2023 was an action packed, data packed, week. Indian had reported core sector growth at 12.07%, GDP growth at 7.6% for Q2 while the fiscal deficit progress appeared to be on target to stay within the budgeted 5.9% of GDP. On the global front, US GDP growth in Q3 was upgraded by 30 bps to 5.2% and US PCE inflation came in 40 bps lower at 3.0%. That was a lot of information and data to process in a single week, especially as most of the data came in the second half. The current week also some spillover effect of all the positive data of the previous week.

    

2. An important factor in the current week was the RBI announcement of the monetary policy. The RBI maintained status quo on rates, which is along expected lines. In addition, the RBI also maintained its inflation forecast at 5.4% with a downward bias in the coming months. This means three things. Firstly, rate hikes are not happening from these levels, unless there is an emergency need to tighten the money markets. Secondly, this means that the impact on cost of capital and valuations should be positive overall. Lastly, this also means that rate cuts should commence sooner rather than later.

    

3. One more aspect of the monetary policy that has important ramifications for the markets is the upgrade of the GDP growth for FY24. The RBI, in the latest monetary policy statement, has upgraded the GDP growth for FY24 by 50 bps from 6.5% to 7.0%. This is likely to induce other players to up their growth estimates for FY24 and this includes the global rating agencies, multilateral lending agencies and even the domestic brokerage houses and the industry bodies. This is likely also result in an upgrade of the top line of Indian companies and their valuations. These can be expected to show up in the coming months.

    

4. The first big indication is that FPIs are looking to bet big on the India story. One of the largest global investors, Temasek of Singapore, has already sent a big delegation to India for a first hand account of how to increase their engagement. Currently Temasek invests about $1.0 billion to $1.5 billion per year into India. Now they want to more than double to $10 billion or more in the next 3 years. That clearly shows an upgrade and more of the long-only funds are likely to upgrade their India exposure. Also, this means a lot more of serious money is likely to flow into India as the Indian equity markets expand in breadth and debt over the coming quarters. In fact, Temasek had expressed its bullish intent earlier, but has put its plans on war footing after the GDP announcement. 

    

5. Finally, the big bets on India are not only from the FPIs but also from the global manufacturers. Global companies have been positive on the India story for quite some time as an alternative to China. Most US companies do not want to risk too much exposure to China. Now, one of the biggest China bulls of the past is turning towards India. Apple plans to enhance the manufacturing of iPhones to 50 million over the next couple of years making India one of their premier markets for the manufacture of iPhones. With the Tatas taking over Wistron, the long term engagement has just started. This is expected to be one of the big fundamental factors driving growth in the coming years and the interest of global investors.

Till the third week of November 2023, FPI flows had been tentative, but the last 2 weeks have seen a huge difference. FPI flows are back in a big way at $2.2 billion and $2.01 billion respectively in the last two weeks. Interestingly, this also happens at a time when India market cap entered the Big-4 club at $4 trillion. That is not a market that FPIs want to ignore at this juncture, especially considering that India is all set to emerge as the third largest economy by GDP by the end of this decade.

Macro FPI flow picture up to December 08, 2023

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

Calendar  Month	FPI Flows Secondary	FPI Flows Primary	FPI Flows Equity	FPI Flows Debt/Hybrid	Overall FPI Flows
Calendar 2022	(146,048.38)	24,608.94	(121,439.44)	(11,375.78)	(132,815.22)
Jan-2023	(29,043.32)	191.30	(28,852.02)	2,308.27	(26,543.75)
Feb-2023	(5,583.16)	288.85	(5,294.31)	1,155.19	(4,139.12)
Mar-2023	7,109.65	825.98	7,935.63	-2,036.42	5,899.21
Apr-2023	9,792.47	1,838.35	11,630.82	1,913.97	13,544.79
May-2023	38,093.11	5,745.00	43,838.11	4,491.44	48,329.55
Jun-2023	45,736.71	1,411.63	47,148.34	9,109.36	56,257.70
Jul-2023	37,292.82	9,324.94	46,617.76	1,359.32	47,977.08
Aug-2023	9,232.57	3,029.71	12,262.28	6,075.54	18,337.82
Sep-2023	(14,576.40)	(191.10)	(14,767.50)	957.11	(13,810.39)
Oct-2023	(28,299.00)	3,751.34	(24,547.66)	6,672.20	(17,875.46)
Nov-2023	(368.40)	9,369.18	9,000.78	15,545.63	24,546.41
Dec-2023 #	23,452.59	3,052.70	26,505.29	4,346.94	30,852.23
Total for 2023	92,839.64	38,637.88	1,31,477.52	51,898.55	1,83,376.07
# – Recent Data is up to December 08, 2023

Data Source: NSDL (all figures are Rupees in crore). Negative figures in brackets

In the last 3 months i.e., September, October, and November 2023, the FPIs were net sellers in secondary market equities. FPIs sold Rs43,244 crore in secondary market equities in these 3 months. This was partially recouped by FPIs buying in the primary IPO markets and the debt markets. The first week of December, however, looks like a different ball game altogether. The equity markets have seen inflows of Rs26,505 crore with the secondary markets dominating. At the same time, the debt markets also saw net inflows of Rs4,347 crore in the first week of December 2023. If you look at a longer range picture, then the net inflows in 2023 till date, to the tune of Rs1.83 trillion is a good 38% higher than the 2022 net outflows of Rs1.33 trillion. That is surely a positive takeaway.

Daily FPI equity flows for last 4 rolling weeks

Each week we look at the last 4 rolling weeks data on FPI flows as it shows us a time series moving average of FPI flows. Check the table below for 4 weeks to December 08, 2023.

Date	FPI Flow (Rs Crore)	Cumulative flows	FPI Flow($ billion)	Cumulative flow
13-Nov-23	5,238.08	5,238.08	639.22	639.22
14-Nov-23	0.00	5,238.08	0.00	639.22
15-Nov-23	-938.04	4,300.04	-112.57	526.65
16-Nov-23	1,523.33	5,823.37	183.25	709.90
17-Nov-23	1,325.45	7,148.82	159.23	869.13
20-Nov-23	-372.74	6,776.08	-44.77	824.36
21-Nov-23	-598.73	6,177.35	-71.85	752.51
22-Nov-23	-152.50	6,024.85	-18.29	734.22
23-Nov-23	-1,364.76	4,660.09	-163.76	570.46
24-Nov-23	1,433.66	6,093.75	171.99	742.45
27-Nov-23	0.00	6,093.75	0.00	742.45
28-Nov-23	2,522.82	8,616.57	302.62	1,045.07
29-Nov-23	1,786.47	10,403.04	214.23	1,259.30
30-Nov-23	4,313.30	14,716.34	517.69	1,776.99
01-Dec-23	9,744.03	24,460.37	1,169.05	2,946.04
04-Dec-23	5,717.47	30,177.84	685.88	3,631.92
05-Dec-23	5,501.97	35,679.81	660.22	4,292.14
06-Dec-23	5,795.20	41,475.01	694.92	4,987.06
07-Dec-23	200.28	41,675.29	24.03	5,011.09
08-Dec-23	-453.66	41,221.63	-54.42	4,956.67

Data Source: NSDL

The week to December 08, 2023 was the second week in a row when inflows crossed $2 billion. After FPIs infused $2.2 billion into Indian equities in the previous week, they infused another $2.01 billion in the latest week to December 08, 2023, with secondary market flows dominating. Here is a quick look at the FPI flows story on a weekly basis.

• In the previous 5 rolling weeks, FPI witnessed inflows of $2.20 billion, inflows of $127 million, inflows of $869 million; outflows of $(697) million, and outflows of $(913) million. The latest week saw net FPI inflows of a whopping $2,011 million, reinforcing the trend of the last 2 weeks, when FPIs had turned net buyers after a gap of a full 11 weeks of persistent selling.

   

• If you look at the last 4 rolling weeks on a cumulative basis, total net FPI inflows into Indian equities were to the tune of Rs41,222 crore or $4,957 million. However, 85% of the flows of the last 4 weeks came in last two weeks to December 08, 2023.

What will drive FPI flows in the coming weeks?

There will be 2 key drivers of FPI flows in the next week.

• The big trigger in the coming week will be the US monetary policy and the inflation numbers. Of course, the inflation numbers in the US and in India will matter. When the Fed announces the policy next week, the markets will not only read closed into the language, but also look for affirmations from the CME Fedwatch about the future course of interest rates. That is likely to be a key factor deciding the direction of FPI flows in the coming weeks. 

   

• Temasek has set the trend by increasing its exposure to India by more than 100%. It remains to be seen if there are going to be more such large long-only fund that commit more funds to India. That would truly be a boost for the FPI flows into Indian markets.

It looks like the undertone of FPI view on India has now decisively turned for the positive. The next few weeks will confirm if the shift is for real, but the broad indications are certainly positive.