Weekly Musings – FPI flows for week ended April 26, 2024

30 Apr 2024 , 09:57 AM

BIG THEMES DRIVING MARKETS IN RECENT WEEKS

Weekly returns would be too short a time frame to take a view on sectors and themes, so we will focus on the themes that have done best in terms of one-month returns on a rolling weekly basis. The Metal index did the best among themes in the last one month, gaining 13.1% in the last one month as a lot of smart money was gravitating towards precious metals like gold and silver as well as industrial metals like aluminium and copper. Many of the industrial metals are likely to see a surge in buying interest due to spike in demand from emerging businesses like EVs, batteries, defence products etc. The other outperformer in the month was public sector enterprises (PSEs) which yielded 9.5% in a month.

In terms of other sectors that showed traction in the latest week, realty theme gained 8.2% in the last one month. Most of the support came from robust booking and delivery numbers reported by the realty companies, especially with respect to residential housing. The other big theme is PSU banks, which gave 8.1% returns in the last one month on a rolling basis. While investors are still wary of private banks on valuation concerns, there is a lot of comfort with respect to PSU banks. Finally, consumer durables giving 7.6% in the last one month. Most of the surge in consumer durables demand is emanating from summer demand for white goods and air-conditioners, especially considering a very hot summer.

RATE CUTS IN THE US RULED OUT FOR NOW

Two data points in the US virtually ruled out rate cuts for now. Firstly, the real GDP growth for Q1-2024 came in sharply lower at 1.6% against the street expectation of 2.4%. This is sharply lower than 3% in Q4 and 4.9% in Q3. Ironically, the reason for the sharp fall in real GDP growth was the spike in inflation as reflected by a higher GDP deflator. The first quarter inflation impact on real GDP has been sharper than imagined. The US Bureau of Economic Analysis (BEA) also announced PCE inflation, which came in 20 bps higher at 2.7%; on top of a 10 bps rise last month. As the inflation reading goes farther from the Fed target of 2%, the chances of a rate cut in the near future get remote. Now, even the CME Fedwatch is fully reconciled to just 1 rate cut in 2024, probably starting from September 2024.

MACRO FPI FLOW PICTURE UP TO APRIL 26, 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) #	(20,525.61)	14,221.65	(6,303.96)	(6,840.14)	(13,144.10)
Total for 2024 (₹ Crore)	(23,431.68)	28,021.37	4,589.69	59,485.90	64,075.59
For 2024 ($ Million)	(2,793.48)	3,370.70	577.22	7,171.12	7,748.34
# - Recent Data is up to April 26, 2024

Data Source: NSDL (Negative figures in brackets)

The last two weeks have been rather contrasting in terms of FPI flows. In the week to April 12, 2024, the FPIs had surprised the street by infusing $1.64 Billion into Indian equities. However, the week to August 19, 2024 saw FPI outflows of $2.23 Billion amidst rising geopolitical risks. However, this week has been relatively timid with net FPI outflows of $126 Million. In equity flows, it is secondary markets that is seeing most of the pressure of selling with primary markets still seeing robust inflows on the back of mega IPOs like Bharti Hexacom, Vodafone Idea etc.

The week to April 26, 2024 saw FPIs turning net sellers in equity secondary markets and in debt markets, although the infusion into primary markets helped to an extent. For calendar 2024 overall, FPIs were net buyers to the tune of $7,748.34 Million. However, it is the outflows from debt that is more of a sentiment dampener, despite the index inclusion tailwind for bond markets. For 2024 till date, FPIs net bought equities worth $577.22 Million and were net buyers in debt to the tune of $7171.12 Million. As of the close of April 26, 2024, the FPIs were still net sellers in secondary market equities worth $(2,793.48) Million, while the buying in IPOs compensated for that at $3,370.70 Million.

This is the second week in a row that FPI flows are under pressure. FPI outflows were a reaction to concerns over emerging market equities; amidst the uncertain situation in the Middle East and West Asia and its implications for oil prices. Aftar having net bought equities worth $1.64 Billion two weeks back, the previous week had seen FPIs net sellers to the tune of $2.23 Billion. But the big news in the week was the sharp fall in the VIX, with the VIX plummeting by over 20% in a single day on Monday. VIX has now fallen from above 14 levels to just above the 10 levels. Clearly, the low VIX has subdued FPI outflows for now.

FPI SENTIMENTS – THE WEEK THAT WAS

For the latest week to April 26, 2024, FPIs were net sellers of $125.51 Million, after being net sellers of $2,229 Million in the previous week. Here are 6 key data points that influenced FPI flows this week.

• US GDP data disappointed in terms of the first advance estimate of Q1-2024 GDP. A 1.6% GDP growth, it was sharply lower than the market estimate of 2.4% and much lower than the previous sequential quarter figures of 3.4% and 4.9%. Ironically, the sharp fall in real GDP growth was despite a very moderate fall in the nominal GDP growth, indicating that most of the pressures were arising from a surge in prices.
• The other big data point in the week was the PCE inflation in the US for March 2024, which came in higher at 2.7%. This 20 bps spike in inflation comes on top of the 10% hike in the previous month. With the last mile inflation continuing to remain sticky, the prospects of rate cuts in the near future are starting to look dim. Now it looks like just on rate cut could happen in the US before the end of this calendar year.
• The week saw a sharp fall in the VIX from above 14 levels to around the 10 levels, with the VIX falling by more than 20% in just one single day on Monday. Normally, the VIX tends to be elevated during the election times, but this time around, the VIX appears to be subdued, giving hopes of further upsides in the markets from these levels.
• The IPO week was dominated by the follow-on public offer (FPO) of Vodafone Idea. The ₹18,000 Crore FPO of Vodafone Idea got subscribed 6.36 times at close and the shares have also listed on the bourses at a premium of 25%. With this fund raising, the company gets a window of nearly 2 years to run and expand its business.
• In a recent data release by the RBI, it is evident that the Indian household debt has now grown to around 39.1% of GDP. Most of the growth in debt came from non-housing debt like care loans, consumer loans and loan against gold. This could spur the RBI to once again position itself to tighten the lending norms for banks and NFFCs
• There are some broad trends that are emerging in terms of Q4FY24 results. Banks are seeing gradual compression in NII growth and NIMs. IT sector is under pressure due to weak growth in constant currency revenues and operating margins. Surprisingly, it was automobiles and the FMCG sector that saw relatively better quarterly numbers this time around. Many mid-sized names showed pressure due to volatile rupee.

The week has been tumultuous in terms of FPI flows and the Q4 results have shown a good deal of pressure. FPIs were net sellers, but domestic flows held up markets in the week.

DAILY FPI EQUITY FLOWS FOR LAST 4 ROLLING WEEKS

Here is 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
01-Apr-24	0.00	0.00	0.00	0.00
02-Apr-24	2,355.23	2,355.23	282.49	282.49
03-Apr-24	-447.29	1,907.94	-53.66	228.83
04-Apr-24	-1,254.92	653.02	-150.43	78.40
05-Apr-24	-977.66	-324.64	-117.16	-38.76
08-Apr-24	1,915.09	1,590.45	229.61	190.85
09-Apr-24	0.00	1,590.45	0.00	190.85
10-Apr-24	8,526.56	10,117.01	1,023.38	1,214.23
11-Apr-24	0.00	10,117.01	0.00	1,214.23
12-Apr-24	3,230.38	13,347.39	388.15	1,602.38
15-Apr-24	-7,937.77	5,409.62	-952.09	650.29
16-Apr-24	-3,233.48	2,176.14	-387.51	262.78
17-Apr-24	0.00	2,176.14	0.00	262.78
18-Apr-24	-3,264.73	-1,088.59	-390.99	-128.21
19-Apr-24	-4,163.15	-5,251.74	-498.48	-626.69
22-Apr-24	772.77	-4,478.97	92.52	-534.17
23-Apr-24	-2,619.00	-7,097.97	-313.98	-848.15
24-Apr-24	-3,458.12	-10,556.09	-414.76	-1,262.91
25-Apr-24	4,227.19	-6,328.90	507.47	-755.44
26-Apr-24	26.94	-6,301.96	3.24	-752.20

Data Source: NSDL

After an interlude of FPI buying two weeks back, FPIs were back to being net sellers in the last two weeks. In fact, it was after 3 weeks of FPI outflows of $39 Million, $360 Million, and $314 Million; that the week to April 12, 2024 saw net FPI inflows of $1,641 Million. However, the week to April 19, 2024 saw net FPI selling of $2,229 Million. The latest week to April 26, 2024 has again seen FPI outflows to the subdued level of $126 Million. Geopolitics in West Asia is surely taking its toll as is the tepid Q4 results. Here is a quick run-down.

• In previous 5 rolling weeks, FPIs had seen net outflows of $2,229 Million, net inflows of $1,641 Million, net outflows of $39 Million, $360 Million, and $314 Million. The latest week to April 26, 2024 saw net FPI outflows of $126 Million from equities. The outflows in the latest week was a continuance of the trend of the previous week, when FPIs sold off heavily, trying to take profits off the table.
• If you look at the last 4 rolling weeks on a cumulative basis, total net FPI outflows from equities were at ₹(6,302) Crore or ($752) Million. This number has shifted recently to negative zone, after being in positive territory for 7 weeks in a row. The week also saw aggressive selling by FPIs in debt. Equity IPOs were the only redeeming feature.

TRIGGERS FOR FPI FLOWS IN COMING WEEKS?

There will be 3 key triggers for FPI flows in the coming weeks.

• The big event in the coming week will be the Fed policy statement on May 01, 2024. It is already clear that the Fed is unlikely to provide any impetus to rate cuts before September. However, in the May policy, the Fed is likely to lay out its outlook and also underline just one rate cut in 2024, especially after the March inflation data.
• The Indian economy will see the announcement of the core sector growth for March 2024 and also for the full year FY24. Core sector saw a sharp revival in the year, driven by massive capital investment outlays by the government. This data will be critical as core sector has a strong multiplier effect on GDP growth.
• The big data to watch out will be the update on fiscal deficit for March 2024. It will give us an idea if the government was able to bring down its fiscal deficit figure to 5.8% of GDP and that will set the tone for the more aggressive target of 5.1% for FY25, and for sub-4.5% in FY26.

The big news in the week was the sharp fall in the VIX (volatility index), which fell by 20% in a single day. This can be seen as an indication of markets ruling out any political surprises in the general elections. A lot will now predicate on the election outcome; and the FPIs will need a reform-oriented message to come back all over again!