DOLLAR STRENGTH LEADS TO LATE CORRECTION
For the week to April 12, 2024, there were a number of data points, both domestic and global. There was the Fed minutes and the US inflation data announced during the week. In addition, the Indian consumer inflation data and the IIP data were also announced during the week. However, the one factor that really spooked the markets in the second half of the week was the sharp spike in the dollar index.
The dollar index (DXY) is a barometer of dollar strength and measures the valuation of the dollar against a basket of hard currencies. The dollar index closed the week at above 106, the highest level seen in the last few months. This is likely to cause volatility in several currencies and the rupee also weakened during the week. The dollar strength was largely on the back of indications that the Fed may not cut the benchmark rates till around September 2024. That led to a surge in the DXY.
NEIL KASHKARI ALSO ADOPTS A HAWKISH TONE
Apart from the data announcements, the one factor that generally has an impact on the US interest rates and the dollar value is the Fed speak. The governors of the Fed express their opinions across various for and these are also taken as credible indications of the interest rate direction of the Federal Reserve. In the latest week, Neil Kashkari adopted a surprisingly hawkish tone, and that is something that spooked the markets. Neil Kashkari comes from Goldman Sachs, one of the bluest of blue investment banks on Wall Street.
Being an investment banker, Kashkari has always adopted a tone that is more pro-market. This is contrast to the Fed governors like Michelle Bowman and Christopher Waller; who are known to be hawks. On the other hand, Kashkari is seen more as a business friendly dove preferring low rates. However, now, even Kashkari feels that the current situation does not warrant rate cuts. He also added that rate cuts could wait; and in fact, he went to the extent of suggesting that even putting off rate hikes in 2024 may be a distinct possibility, should inflation continue to play truant. That led to the sell-off.
MACRO FPI FLOW PICTURE UP TO APRIL 12, 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) # | 5,681.84 | 7,665.55 | 13,347.39 | 2,358.58 | 15,705.97 |
Total for 2024 (₹ Crore) | 2,775.77 | 21,465.27 | 24,241.04 | 68,684.62 | 92,925.66 |
For 2024 ($ Million) | 347.90 | 2,583.90 | 2,931.80 | 8,273.56 | 11,205.36 |
# – Recent Data is up to April 12, 2024 |
Data Source: NSDL (Negative figures in brackets)
Interestingly, despite the flow of events that would suggest that FPIs would have gone slow on India, the week saw FPIs infusing $1,641 Million into Indian equities. A large part of these flows could be attributed as anchor investor flows and QIB flows into the IPO of Bharti Hexacom Ltd. However, the fact remains that FPIs showed enthusiasm about investing in India, even at a time when the US markets were generally in a state of turmoil.
As of April 12, 2024, the FPIs consolidated their position as net buyers in the year 2024 across equity and debt combined. Now, FPIs are net buyers in the secondary markets and also in the primary markets in equities, apart from being decisive buyer in debt. For calendar 2024 overall, FPIs were net buyers to the tune of $11,205.36 Million. However, it is the debt flows that continue to dominate the FPI interaction in India. That is not surprising considering that there has been a surge of global bond flows ahead of the inclusion of Indian government debt in the global JP Morgan and Bloomberg indices. For 2024 till date, FPIs net bought equities worth $2,931.80 Million and were net buyers in debt to the tune of $8,273.56 Million. As of the close of the first week of April 12, 2024, the FPIs were still net buyers in secondary market equities worth $347.90 Million, while the buying in primary market IPOs compensated for that at $2,583.90 Million. Needless to say, the debt flows continued to be robust overall.
There are 2 things we can infer from the above data. Firstly, FPI flows into India were strong despite it being a truncated week of just 3 days of FPI reporting. Secondly, these FPI flows were despite the growing geopolitical risk in the Middle East and the rising tide of hawkishness among US monetary policymakers. Aftar having net sold equities worth $713 Million in last 3 weeks, FPIs were net buyers of $1.64 Billion in the latest week. Also, FPIs had been net buyers of $5.56 Billion in the 4 weeks prior to the sell-off. This week is a lot more representative as India settles to the new fiscal year. However, the irony is that the VIX continues to be subdued in the 11.53 levels, despite upcoming elections.
FPI SENTIMENTS – THE WEEK THAT WAS
For the latest week to April 12, 2024, FPIs were net buyers to the tune of $1,641 Million; after selling $713 Million in the previous 3 weeks. This is fairly small compared to the size of inflows in the weeks prior to that. Here are 5 key data points that influenced FPI flows.
The big question still remains on when the Fed will eventually start cutting rates. As the weeks go by, the situation looks more ambivalent and FPIs are starting to reconcile to living with an ambivalent Federal Reserve. The focus shifts to the Indian domestic story for now!
DAILY FPI EQUITY FLOWS FOR LAST 4 ROLLING WEEKS
Here we look at the last 4 rolling weeks data on FPI flows as it shows us a time series moving average of FPI flows.
Date | FPI Flow (₹ Crore) | Cumulative flows | FPI Flow($ Million) | Cumulative flow |
18-Mar-24 | 773.09 | 773.09 | 93.26 | 93.26 |
19-Mar-24 | -1,166.67 | -393.58 | -140.71 | -47.45 |
20-Mar-24 | 1,351.07 | 957.49 | 162.90 | 115.45 |
21-Mar-24 | -2,242.76 | -1,285.27 | -269.88 | -154.43 |
22-Mar-24 | -1,326.96 | -2,612.23 | -159.62 | -314.05 |
25-Mar-24 | 0.00 | -2,612.23 | 0.00 | -314.05 |
26-Mar-24 | -3,871.43 | -6,483.66 | -464.45 | -778.50 |
27-Mar-24 | -3,170.59 | -9,654.25 | -380.37 | -1,158.87 |
28-Mar-24 | 4,042.50 | -5,611.75 | 485.14 | -673.73 |
29-Mar-24 | 0.00 | -5,611.75 | 0.00 | -673.73 |
01-Apr-24 | 0.00 | -5,611.75 | 0.00 | -673.73 |
02-Apr-24 | 2,355.23 | -3,256.52 | 282.49 | -391.24 |
03-Apr-24 | -447.29 | -3,703.81 | -53.66 | -444.90 |
04-Apr-24 | -1,254.92 | -4,958.73 | -150.43 | -595.33 |
05-Apr-24 | -977.66 | -5,936.39 | -117.16 | -712.49 |
08-Apr-24 | 1,915.09 | -4,021.30 | 229.61 | -482.88 |
09-Apr-24 | 0.00 | -4,021.30 | 0.00 | -482.88 |
10-Apr-24 | 8,526.56 | 4,505.26 | 1,023.38 | 540.50 |
11-Apr-24 | 0.00 | 4,505.26 | 0.00 | 540.50 |
12-Apr-24 | 3,230.38 | 7,735.64 | 388.15 | 928.65 |
Data Source: NSDL
After 3 weeks of FPI outflows of $39 Million, $360 Million, and $314 Million; the current week to April 12, 2024 saw net FPI inflows of $1,641 Million. What is gratifying is that, this comes in a week that was marked by geopolitical turmoil and macroeconomic uncertainty about the trajectory of US interest rates. Here is a quick run-down.
TRIGGERS FOR FPI FLOWS IN COMING WEEKS?
There will be 3 key triggers for FPI flows in the coming weeks.
FPI flows in the coming weeks will determine the confidence that the FPIs are willing to repose on India. This comes at a time when the valuations are stiff and Q4 profit growth could be tepid. It would be interesting to see how the FPIs interpret these data flows in the coming week.
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