FPIs infuse over $1.4 billion into Indian equities in April 2023

1 May 2023 , 06:13 PM

In the latest month, it was a clear case of consistent buying into Indian equities by the foreign portfolio investors. That is rather intriguing because the global scenario still remains rather hazy with the banking crisis continuing to manifest itself in a variety of ways. Also, the US Fed continues to be hawkish and that is normally a depressant for EM flows. Perhaps, it is the weakness in the dollar that has been propelling flows into Indian markets.

Let us take a quick look at the FPI flows in perspective from October 2021. Between October 2021 and June 2022, FPIs net sold equities worth $34 billion. That was the worst period of FPI outflows. Subsequently, in the second half of calendar 2022, the FPIs did turn net buyers. In calendar 2022, FPIs net sold $28 billion of equities in H1-2022 but turned net buyers of equities worth $12 billion in H2-2022. Overall, FPIs were ended the year 2022 as net sellers to the tune of $16 billion in Indian equities. Year 2023 began on a negative note, but we saw $966 million infusion in March 2023 and now $1.41 billion in April 2023.

April 2023: Equities see net buying, and so does debt

The table captures monthly FPI flows into equity and debt for 2022 and 2023, with the latter being month-wise.

Calendar  Month	FPI Flows Secondary	FPI Flows Primary	FPI Flows Equity	FPI Flows Debt/Hybrid	Overall FPI Flows
Full Year 2022	(146,048.38)	24,608.94	(121,439.44)	(11,375.78)	(132,815.22)
January 2023	(29,043.32)	191.30	(28,852.02)	2,308.27	(26,543.75)
February 2023	(5,583.16)	288.85	(5,294.31)	1,155.19	(4,139.12)
March 2023	7,109.65	825.98	7,935.63	-2,036.42	5,899.21
April 2023	9,792.47	1,838.35	11,630.82	1,913.97	13,544.79
Total for 2023	(17,724.36)	3,144.48	(14,579.88)	3,341.01	(11,238.87)

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

After FPI selling of $4.21 billion in the first 2 months of the year 2022, March 2023 has seen FPI net buying of $966 million. One can argue that the March inflow was largely on account of the GQG infusion into the Adani group stocks. In the absence of that, FPIs would have been net sellers in March 2023. However, there was no such ambivalence in April 2023 and from the beginning of the month, the FPIs were decisively infusing funds into Indian equities. In fact, barring a few days in between, FPIs were decisive net buyers in April.

• April 2023 was a truncated week with trading with just 17 days due to a slew of holidays during the month. However, despite the limited number of days, the FPIs were net buyers on 12 of these days and sellers only on 5 days. During these 17 days, the FPIs infused $1.41 billion into Indian equities.

   

• The big trigger for this shift towards more positive FPI flows was the RBI MPC decision to hold rates at 6.5%. That was contrary to popular expectations, but the RBI felt it was a risk worth taking. The decision raised hopes that the RBI may be very close to the peak interest rates, if not already at the peak rate. That led to a lot of FPI inflows into the rate sensitive sectors like banks, NBFCs and auto stocks. 

   

• One of the major reasons for the confidence of FPIs in the month of April stemmed from the fact that corporate results continue to be robust despite headwinds like slowdown in rural demand, weak exports, supply chain constraints and high cost of funds. There were some concerns over the tepid outlook given by the IT companies but banks continued to flatter on the upside and large companies like Reliance, Hindustan Unilever and others delivered results that were much better than street expectations.

   

• One of the major trends in the month of April was the decisive inflows into debt, with only hybrids seeing outflows. The interest in debt stemmed from the anticipated fall in the 10-year benchmark yields after the RBI status quo on rates. Eventually the yield did fall by a full 40 bps from 7.5% to 7.1% over a 40 day period. That has made FPIs very positive on Indian debt, especially considering the potential to lock in at very high yield and limited currency risk.

One of the factors that triggered FPI flows into India in April was also the weakness in the dollar index. That means that the rupee held around the 81.5/$ levels even without RBI intervention. This gave confidence to FPIs about positive dollar yields on their India equity investments.

How FPI equity flows panned out in April 2023

The table below gives a granular picture of daily flows into Indian equities in the month of April 2023; both in rupee and in dollar terms. 

Report Date	FPI Flow (Rs Crore)	Cumulative Rs Flow	FPI Flow($ million)	Cumulative $ Flow
03-Apr-23	2,366.24	2,366.24	287.81	287.81
05-Apr-23	558.14	2,924.38	67.75	355.56
06-Apr-23	822.46	3,746.84	100.07	455.63
10-Apr-23	454.26	4,201.10	55.42	511.05
11-Apr-23	1,383.46	5,584.56	168.90	679.95
12-Apr-23	1,030.46	6,615.02	125.53	805.48
13-Apr-23	2,151.92	8,766.94	262.20	1,067.68
17-Apr-23	804.35	9,571.29	98.12	1,165.80
18-Apr-23	422.01	9,993.30	51.50	1,217.30
19-Apr-23	-552.03	9,441.27	-67.26	1,150.04
20-Apr-23	169.54	9,610.81	20.64	1,170.68
21-Apr-23	-967.59	8,643.22	-117.77	1,052.91
24-Apr-23	-1,693.76	6,949.46	-206.17	846.74
25-Apr-23	-336.03	6,613.43	-40.96	805.78
26-Apr-23	-361.98	6,251.45	-44.20	761.58
27-Apr-23	1,443.53	7,694.98	176.22	937.80
28-Apr-23	3,935.84	11,630.82	482.03	1,419.83

Data Source: NSDL

There are 2 key inferences from the daily flow table above.

• The big trigger for FPI flows came from the RBI policy announcement maintaining status quo on rates. That not only showed that the RBI was willing to look at a more India-centric monetary answer, but also promised to reduce the cost of funds pressure on Indian industry. RBI had been facing demands from the industry bodies to go slow on rate hikes and the decision was a clear response to such demands. After all, for India, the big challenge is to continue to be the fastest growing large economy; a title it has held in the last 2 years. For that lower rates, or at least steady rates, were essential.

   

• The second big trigger for the FPIs came on two fronts. Firstly, the corporate results for the fourth quarter were not as disappointing as expected. Of course, like in the previous quarter, it was again the banks doing all the roughing up. However, even in other sectors, the top line did come under pressure, but profits were still maintained. This boosted equity flows. In addition, debt flows were also positive in April from the FPIs due to the signals that rates would either top out or may be close to topping out.

How do we see the FPI flows story in May 2024?

Crystal ball gazing is never an easy job, but there are a number of factors working in favour of positive flows into India. The combination of rates peaking out and steady rupee could result in a lot more FPIs locking into India debt paper at higher yields We could see a gradual shift to debt in the next few months, starting May 2023. On the equity front, FPIs are likely to continue to be cautious on IT, energy, and commodities. However, the BFSI space will see sustained buying from the FPIs. After all, there is no better play that touches upon falling rates, growth, and consumer spending.

One factor that will still matter is the China growth story, and that is yet to manifest itself fully. If that gives positive signals in May 2023, FPI flows into India could be in for some heady times.