Weekly Musings – FPI flows for week ended August 30, 2024

2 Sep 2024 , 01:17 PM

WHY THE TURNAROUND IN FPI FLOWS THIS WEEK?

The week to August 30, 2024 saw a substantial turnaround in FPI flows as $2.82 Billion of fresh money was infused into the Indian equity markets. To be fair, the IPO market continued to be robust with a lot of FPI money coming into India through the QIB route and the anchor allocation route. However, that was not all. Even the secondary market route saw a lot of FPI interest in the week and this could be attributed to the index tweaking by the MSCI. The MSCI index tweaks and the Nifty index changes has brought in a lot of passive flows into the Indian equity markets. But, are these flows really sustainable?

For now, we have to wait and watch. For example, the flows could taper once the index revisions are done and the passive funds indexed to these benchmark indices are done with the adjustment. However, the frenetic inflows into IPOs show that there is still substantial appetite for Indian equity paper among the FPIs, despite the apparent concerns over valuations. Most FPIs have been sceptical about the Indian markets in the last few months on account of uncertainty over the political equations, pressures on the fiscal deficit and concerns over macro growth and the quarterly corporate results of Indian companies.

THIS WEEK ACTUALLY DISPELLED LOT OF APPREHENSIONS

In fact, the week to August 30, 2024 had some important data flows, which would have dispelled some of the doubts around the FPI flows into India. Here we look at some of the data flows that dispelled some of the major FPI fears this week.

• The India GDP data may have been lower at 6.7% for the first quarter of FY25. However, there are some positive takeaways for FPIs. Firstly, the real GDP may have been lower on a yoy basis, but the nominal GDP growth in the quarter at 9.7%, was actually 120 bps better than the year ago period. This goes to show that in term of economic activity overall, the current quarter has been more robust than last year, with the pressure only coming from the higher inflation levels, largely on account of food inflation.
  
• The fiscal deficit data presented in the week should also come as manna from heaven for the FPIs. As of the close of the fourth month of the year, the fiscal deficit had only scaled 17.2% of the full year fiscal deficit target. Here we are talking about the scaled-down fiscal deficit target for FY25 at ₹16.13 Trillion, which is about 4.9% of GDP. That only implies, that the fiscal concerns need not be overplayed for now.
  
• US inflation and growth data is clearly indicating towards the first rate hike in September and, perhaps, more to come. The lates data from the US this week indicating that the PCE inflation (the Fed benchmark) was flat at 2.5%, but the GDP growth rate had been upped for Q2-2024 to 3.0%. It had already bounced from 1.4% to 2.8% sequentially as of the first advance estimate of the US Q2 GDP data. Now that has been further upgraded by 20 bps on the back of higher nominal growth and lower inflation expectations.

What would be the FPIs expecting now? Firstly, a lot will depend on the first rate cut by the Federal Reserve happening in September and their guidance for the future trajectory of rates in the US. Secondly, the FPIs would also been keen to see if the RBI follows suit. That would not only give an indication of falling inflation in the Indian context, but also serve as a trigger for the cost of funds of corporates to come down. For not; it is fingers crossed.

MACRO FPI FLOW PICTURE UP TO AUGUST 30, 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)	(23,331.04)	14,659.77	(8,671.27)	(7,588.75)	(16,260.02)
May-2024 (₹ Crore)	(30,613.87)	5,027.54	(25,586.33)	12,675.47	(12,910.86)
Jun-2024 (₹ Crore)	24,345.55	2,218.99	26,564.54	15,192.90	41,757.44
Jul-2024 (₹ Crore)	26,059.05	6,305.79	32,364.84	16,431.20	48,796.04
Aug-2024 (₹ Crore) #	(5,552.01)	12,872.13	7,320.12	18,173.17	25,493.29
Total for 2024 (₹ Crore)	(11,998.39)	54,883.94	42,885.55	1,21,210.03	1,64,095.58
For 2024 ($ Million)	(1,417.00)	6,580.82	5,163.82	14,556.22	19,720.04
# – Recent Data is up to August 30, 2024

Data Source: NSDL (Negative figures in brackets)

FPIs turned net buyers in the latest week to August 30, 2024, to the tune of $2,816 Million only. Combined with the $584 Million infusion in the previous week, this more than offsets the FPI selling in equities to the tune of $2.70 Billion in 3 weeks prior to that. One can take solace from the fact that post the election outcome, the FPIs had infused $9.04 Billion over 5 weeks; and now in post-government formation terms, Indian equities have seen net FPI flows to the tune of more than $10 Billion.

For calendar 2024 so far, FPIs were net buyers to the tune of $19,720 Million. Out of this figure, FPIs net bought equities worth $5,164 Million and were net buyers in debt worth $14,556 Million. For 2024, till date, net debt market inflows accounted for 73.81% of total net FPI flows into India. Year 2024 has been more about debt flows and less about equity flows; albeit with the dominance of debt flows lower than the previous week. As of the close of August 30, 2024, the FPIs were still net sellers in secondary market equities worth $(1,417.00) Million, while the buying in IPOs more than compensated for that at $6,580.82 Million.

FPI SENTIMENTS – THE WEEK THAT WAS

For the latest week to August 30, 2024, FPIs underlined their position as net buyers to the tune of $2,816 Million. FPIs have now been net buyers for 2 weeks in a row, after being net sellers for 3 weeks prior to that. However, what really matters is that in the aftermath of the government formation (Modi 3.0), the FPIs have infused a decisive $10 Billion in Indian equities. Here is what drove FPI sentiments this week.

1. The India GDP data for the first quarter ended June 2024 came in lower than expected in real terms at 6.7%. This was largely along expected lines. There was pressure on agriculture and on services (especially financial and trade related services). However, manufacturing, mining and even construction got a leg up in the first quarter, which is rather gratifying. There was more good news. While the GDP was lower in Q1FY25 in real terms at 6.7%, it was actually 120 bps higher in nominal GDP growth terms. This indicates that the overall economic activity continues to be very robust. For FY25, the RBI has pegged the GDP growth rate at 7.2%. While there are concerns on this growth in some quarters, one must keep in mind that Moody’s had recently raised its growth forecast for India for the year by 40 bps on expectations of a revival in the capex cycle as well as a sharp revival in rural demand.
   
2. The India fiscal deficit data for the month of July 2024 was along expected lines. In the first 4 months of FY25, India has exhausted just about 17.2% of its full year fiscal deficit target of ₹16.13 Trillion. Remember, this pertains to the sharply reduced fiscal deficit target of just 4.9% of GDP. That means; India is on part to achieve 4.9% or better in FY25 and move towards well below 4.5% fiscal deficit in FY26.
   
3. Core sector growth for July bounced back to 6.12%, along with a 115 bps upgrade to the core sector growth for June 2024. However, it is more the components of the core sector that was interesting. For instance, the output contraction came from oil extraction and natural gas, both of which are largely policy related. The big shift was the sharp growth in the refinery output as crude supplies stabilized. More importantly, refinery output has a 28% share of the core sector basket. For July 2023, the gratifying feature was that all the heavyweight sectors like oil refining, steel, electricity, and coal production grew at over 6%, which ensured that overall core sector growth also remained above 6%. The real message was that core sector growth is robust despite the lower growth in capex and that is the positive takeaway.
   
4. It was a busy week in the US markets with the second estimate of Q2-2024 GDP and the PCE inflation for July 2024 being published by the US Bureau of Economic Analysis (BEA). The second estimate of Q2 US GDP saw a further upgrade of 20 bps to 3.0% from 2.8% in the first advance estimate. More importantly, this is sharply higher than 1.4% recorded in Q1-2024 and could be the first reliable indication that hard landing is not a concern any longer, irrespective of what the jobs data for July 2024 may have indicated. The PCE inflation data, announced one day later, was static at 2.5%. Now, PCE inflation has held an average level of 2.58% in the last 9 months, enough indication for the Fed to pursue the first rate cut when it meets next on September 18, 2024.
   
5. The week also saw the 47th AGM of Reliance Industries. To make the price of the stock more accessible to retail investors, the company announced a 1:1 bonus, which will be approved in the September 05, 2024 board meeting. In a significant statement at the AGM, Mukesh Ambani had stated that the new energy business would be the big growth engine of growth and would attain the size of the oil to chemicals (O2C) business of Reliance Industries in the next 4-5 years.
   
6. SEBI has revised the eligibility norms for inclusion / exclusion of stocks in F&O. The focus would be on nearly tripling the median quarter sigma order size and also triple the market wide position limits (MWPL), so that there is more of a concentration of high quality players and investors with financial muscle in the F&O market. The regulator had expressed constant apprehension of the overdose of retail participation in F&O markets. The new norms is also likely to drastically change the composition of the F&O list.

With most of the data flows done and dusted for now, the focus would in the coming week would largely be on the US labour data; something that had spooked the global markets just one month ago.

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 flows
05-Aug-24	-3,367.22	-3,367.22	-402.12	-402.12
06-Aug-24	-3,692.07	-7,059.29	-440.38	-842.50
07-Aug-24	-3,024.79	-10,084.08	-360.49	-1,202.99
08-Aug-24	-2,841.65	-12,925.73	-338.49	-1,541.48
09-Aug-24	521.65	-12,404.08	62.13	-1,479.35
12-Aug-24	-1,161.33	-13,565.41	-138.42	-1,617.77
13-Aug-24	-2,811.08	-16,376.49	-334.77	-1,952.54
14-Aug-24	-1,419.70	-17,796.19	-169.08	-2,121.62
15-Aug-24	0.00	-17,796.19	0.00	-2,121.62
16-Aug-24	-2,377.62	-20,173.81	-283.26	-2,404.88
19-Aug-24	1,196.49	-18,977.32	142.51	-2,262.37
20-Aug-24	-1,756.42	-20,733.74	-209.30	-2,471.67
21-Aug-24	4,034.96	-16,698.78	481.61	-1,990.06
22-Aug-24	-430.70	-17,129.48	-51.32	-2,041.38
23-Aug-24	1,852.13	-15,277.35	220.60	-1,820.78
26-Aug-24	3,882.05	-11,395.30	462.84	-1,357.94
27-Aug-24	969.41	-10,425.89	115.61	-1,242.33
28-Aug-24	4,794.61	-5,631.28	571.18	-671.15
29-Aug-24	-574.83	-6,206.11	-65.25	-736.40
30-Aug-24	14,526.64	8,320.53	1,731.63	995.23

Data Source: NSDL

FPIs sustained the net buying for the second week in a row after being net sellers for 3 weeks. In the latest week, the FPIs infused a whopping $2.82 Billion into Indian equities, more than wiping out the net FPI selling in the first 3 weeks of August 2024. In the 3 months since the formation of the Modi 3.0 government, FPIs have infused more than $10 Billion into Indian equities; a clear signal of the FPI confidence that reforms are on track. Here are some key FPI data takeaways.

• In previous 7 rolling weeks, FPIs saw net inflow of $584 Million; net outflows of $(926) Million, $(1,479) Million, $(281) Million, and net inflows of $349 Million, $1,845 Million, $885 Million. In the latest week to August 30, 2024 net FPI equity inflows were an impressive $2,816 Million.
  
• If you look at the last 4 rolling weeks on a cumulative basis, total net FPI inflows into equities were to the tune ₹8,321 Crore or $995 Million. This number has just turned into positive territory; after it had been in the negative zone for the previous 3 weeks.

TRIGGERS FOR FPI FLOWS IN COMING WEEKS?

The last few weeks have been action packed. There was the Union Budget, Fed policy statement, MPC minutes, FOMC minutes, Jackson Hole speech of Powell, and India GDP data. In the coming week, 3 factors are likely to impact the FPI flows in India.

• The big data point this week will be the US labour report for August 2024, especially the unemployment level, which had triggered the sell-off last month.
  
• The second big focus area will be the India PMI data and the auto numbers. The latter is expected to stay under pressure for the month of August 2024 also.
  
• IPO markets will be in focus with the ₹835 Crore IPO of Bazaar Style Retail and the mega IPO of ₹6,560 Crore of Bajaj Housing Finance in the week after that.

FPI flows are still in a state of flux. The latest week has a strong bounce in FPI flows. However, with $10 Billion flowing into Indian equities since Modi 3.0, the overall macro story of FPIs is not bad at all!