Weekly Musings – FPI flows for week ended July 07, 2023

8 Jul 2023 , 01:02 PM

May 2023 saw FPI inflows of $5.30 billion and June 2023 witnessed FPI inflows of $5.74 billion. In short, a whopping $11 billion of FPI flows have come into Indian equities just in the months of May and June 2023. In the first week of July 2023, the FPIs have infused another $2.67 billion into Indian equities, which is quite impressive in the backdrop of the total flows that have already come into India as of the last two months. In rupee terms, the FPI flows in the first week of July 2023 stood at Rs21,944 crore. The week also saw some block deals, but more importantly, the positive trends of May and June lasted into the first week of July 2023 too.

In the previous week, the Fed minutes hinted at more rate hikes, but then the pace of rate hikes would be more calibrated. The Fed members have been pencilling rate hikes of 50 bps to 75 bps going ahead. But what has changed is the perception of pace. The general view emerging in the FOMC was that the Fed may choose to maintain status for a longer time, although it may not be in a hurry to cut rates. However, rate hikes would still be dependent on the inflation target of 2%. The labour data was also announced with the unemployment rate softening from 3.7% in May to 3.6% in June. In a sense, this data was well received by the market as it indicated that the fears of hard landing were largely overdone. The US economy had been showing a lot of resilience and could handle the rate hikes without any major dent on the economic growth.

Macro FPI flow picture for the week to July 07, 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 #	18,932.26	3,011.56	21,943.82	-1,847.86	20,095.96
Total for 2023 #	85,037.72	13,312.67	98,350.39	15,093.95	113,444.34
# – July Data is up to July 07, 2023

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

We now have the FPI flow data for the first week of July 2023 and the FPIs are clearly buyers in equity. FPIs infused $11 billion into equities in the last 2 months, effectively becoming net buyers in equities in the calendar year 2023 by a huge margin. This is despite starting off with two months of aggressive selling by the FPIs. However, FPIs sold into debt in the latest week. As of July 07, 2023, FPIs have infused $11.96 billion into Indian equities and over $13.75 billion into Indian equities and debt combined in calendar year 2023. Of course, in contrast to the week before, the latest week saw FPIs being net sellers in debt, although the figure was marginal. What were the triggers? (live equity action on markets page).

• The FOMC minutes were a kind of a mixed message for the markets and for the FPIs. For instance, the Fed maintained its hawkish stance on the markets and even hinted at another two to three rounds of rate hikes from here on. However, the FOMC members also indicated that there would not be any front-ending of rates, as was done in the past. The Fed would be more data driven and would only hike rates if the data so justified. Also, the Fed was willing to maintain status quo for much longer.

   

• The labour data for June 2023 in the US softened with jobless rate falling by 10 basis points from 3.7% to 3.6% in the last one month. That may be a marginal fall considering that the jobless rate had risen from 3.4% to 3.7% in the month of May. However, it also indicates that the growth impact of the rate hikes was limited. There were concerns among the Fed members that the US economy would dip into recession in the second half of 2023. However, the latest labour data shows a lot of resilience and almost questions the assumption of a hard landing. That has gone down well with markets.

   

• The US trade data was also much  better than expected for May as compared to April 2023. For instance, if you look at the overall trade numbers in the US for the latest data announcement, the merchandise trade deficit had narrowed while the services surplus had expanded leading to the overall trade deficit falling by nearly $3 billion on a MOM basis. This also belies the assumption that the US economy could be slowing; as the trade is normally a barometer of the health of the economy.

   

• If one looks at the colour of the FPI flows in June 2023 into India, the inflows are dominated by financial services, consumer products and capital cycle triggers. That is where the FPIs are betting on and for now the expectation is also that the Q1FY24 numbers should be buoyant in terms of top line and bottom line growth.

The calendar year 2023 started off on a dull note in terms of FPI flows. However, things reversed from March and April and by the end of the first week of July 2023, FPIs have been net buyers of $11.96 billion into equities and about $1.80 billion in debt. This is after offsetting the massive selling that FPIs saw in January and February 2023.

Colour of daily FPI equity flows for last 4 rolling weeks

The table below gives a granular picture of daily flows into Indian equities over last 4 rolling weeks; in rupee and in dollar terms. The latest week has been shaded.

Date	FPI Flow (Rs Crore)	Cumulative flows	FPI Flow($ billion)	Cumulative flow
12-Jun-23	-133.06	16,176.44	-16.15	1,958.20
13-Jun-23	-594.43	15,582.01	-72.09	1,886.11
14-Jun-23	2,200.33	17,782.34	267.06	2,153.17
15-Jun-23	1,862.82	19,645.16	226.31	2,379.48
16-Jun-23	3,282.01	22,927.17	399.28	2,778.76
19-Jun-23	181.15	23,108.32	22.12	2,800.88
20-Jun-23	1,756.21	24,864.53	214.26	3,015.14
21-Jun-23	5,866.41	30,730.94	714.40	3,729.54
22-Jun-23	5,508.03	36,238.97	670.94	4,400.48
23-Jun-23	946.28	37,185.25	115.51	4,515.99
26-Jun-23	199.33	24,373.69	24.29	2,965.61
27-Jun-23	-349.33	24,024.36	-42.62	2,922.99
28-Jun-23	1,830.64	25,855.00	223.35	3,146.34
29-Jun-23	0.00	25,855.00	0.00	3,146.34
30-Jun-23	14,803.87	40,658.87	1,805.08	4,951.42
03-Jul-23	11,849.68	49,209.94	1,444.32	5,996.06
04-Jul-23	2,456.38	51,666.32	300.06	6,296.12
05-Jul-23	2,515.33	54,181.65	306.87	6,602.99
06-Jul-23	2,289.64	56,471.29	278.67	6,881.66
07-Jul-23	2,832.79	59,304.08	343.55	7,225.21

Data Source: NSDL

The week to July 07, 2023 saw FPI flows of $2.67 billion with bulk of the flows coming on the first day of the week. Based on the 4 weeks of rolling FPI flows into equities, here are some interesting inferences.

• In the last 4 rolling weeks, the FPI infusion into Indian equities has been $804 million, $1,737, and $2,010 million respectively. The latest week has been one of the best weeks with $2,673 million of flows into equities.

   

• For the week to July 07, 2023, the FPI net inflows into equities stood at Rs21,944 crore or $2.67 billion, supported by big block deals and signs of strength in the US economy. This is better than any of the previous 10 weeks in succession.

   

• If you look at the last 4 rolling weeks on a cumulative basis, total FPI flows into Indian equities were Rs59,304 crore or $7.23 billion. FPI sentiments are also buoyed by relative valuations versus other EMs.

In the last 4 weeks, FPIs have been consistently on the buy side of Indian equities, while the selling occasions have been few and far between. FPIs are now decisively net buyers in debt and equity for calendar 2023 and, for now, that trend looks to sustain.

What are the stories that FPIs will bet on from here?

One factor that will still play on the minds of FPIs is the persistent global hawkishness and that is not changing easily. However, the Fed minutes have given a sobering picture that the Fed would be data driven and hike rates only if warranted. Of course, the undertone still remains hawkish, but the Fed is clear that too much of front-ending is now ruled out. Fortunately, the domestic concerns over monsoons have abated as the deficiency has reduced drastically. One area of interest would be to see if the Paddy prices get impacted by the delayed monsoons and the impact on the food basket inflation. That has larger impact on rural demand in sectors like FMCG, two-wheelers, tractors, and consumer goods. 

The big shift in the latest month was the FPIs betting on a turnaround in the capital investment cycle. That is a good positive long term perspective and also likely to sustain. For now, the FPIs must sustain their interest in the capital goods story and these capital cycle companies must delivery in Q1FY24 in terms of numbers. For now, FPIs are on the buy side.