Weekly Musings – FPI flows for week ended December 01, 2023

3 Dec 2023 , 09:29 AM

FPIs infuse record $2.2 billion in the week to December 01, 2023

The signals of a turnaround in FPI sentiments were always there but that just got reinforced in the last couple of days of the week after the India GDP story became clear. In fact, the number are very impressive. The latest week was a truncated week since Monday was a market holiday. In the remaining 4 days, the FPIs infused $2.2 billion into Indian equities; and interestingly it was a mix of secondary market buying and IPO inflows in equal measure. 

That is good news since the FPIs were net sellers in secondary markets but were buying into IPOs till the prior week. That has changed into a full-fledged bullish sentiment in the latest week to December 01, 2023. Of course, debt flows in November 2023 continued at a robust pace with FPIs infusing Rs15,546 crore into Indian debt in the month of November 2023, one of the best months on record since the post-pandemic rush to invest in India. But let us turn our focus to that one factor that changed sentiments; India’s Q2 GDP  growth.

Big Story: India’s Q2FY24 GDP growth beats the street at 7.6%

When the MOSPI announced the India GDP growth for the second quarter ended September 2023 on the last day of November, the numbers actually took the markets by surprised. The general streel expectation was that GDP would grow at 6.8% in Q2 with the more optimistic among the economists and analysts going up to a best case of 7% GDP growth. However, the actual real GDP growth at 7.6% was substantially higher than expected. Even the nominal GDP at above 9% was actually better than Q1, indicating that despite higher inflation the Q2 performance had been a stellar one on the GDP front. 

While real agricultural growth was slightly lower than Q1, India had witnessed double digit growth in mining, manufacturing, construction, and utilities. All these are unmistakeable indicators of more industrial growth in the anvil and that has fired up the market sentiments. This also means that most of the brokers and even multilateral agencies are going to upgrade India’s full year GDP growth estimates by at least 30 bps to 50 bps from current level. We could see the first indications coming from the RBI when it announces its last monetary policy of the year on December 08, 2023, in the coming week.

What changed FPI sentiments in the week to December 01, 2023?

It was a truly sharp change of view; or how would you explain the FPIs infusing $2.2 billion into Indian equities in a week. More importantly, these inflows were equally distributed between primary market flows and secondary market flows. What changed so drastically. There combination of these 5 key factors turned the sentiments of FPIs decisively.

1. We have discussed at length about the role that better than expected GDP played in turning around FPI sentiments. If you look at the FPI flows of $2.2 billion, most of it happened in the last 2 days of the week. Remember this was a truncated week. The GDP estimate for Q2FY24 at 7.6%, not only lays the base for a likely upgrade of full year GDP growth, but also paves the way for a better justification of valuations in the Indian context. A lot will depend on whether this momentum can be sustained in the coming quarters, but the FPIs apparently believe that there would be a GDP upgrade for FY24.

    

2. Apart from the GDP growth, two other data points were also key to turning the FPIs positively inclined about Indian equities. The first was the core sector growth. At 12.07% for October, it marked the fifth successive month of above 8% growth in core sector. That is surely a trend and not just a flash in the pan. It shows that the government’s big bet on infrastructure is paying handsome dividends in the form of a boost to infrastructure growth, with all its positive ramifications for long term growth. The good news is that the real core sector thrust is coming from coal, power, steel, and cement. Secondly, the cues on fiscal deficit also look positive with just 45% of full year target scaled in 7 months. It looks like the government can now meet the 5.9% fiscal deficit target without too much of an effort.

    

3. The third big trigger was the listing of the big ticket IPOs during the week. Among the 5 big ticket IPOs that listed in the week; IREDA, Tata Technologies, Flair Writing and Gandhar Oil managed to trade between 50% and 150% above their IPO prices. The only disappointment was Fedbank Financial Services which listed around the listing price and did not provide any fireworks after that. Overall, it shows an IPO market that is earnestly robust and willing to support the big-ticket IPOs. This can most likely pave the way for more big ticket IPOs in the coming months. That has kept FPIs excited about prospects in the Indian primary markets.

    

4. The last two factors here were global news items which had a deep impact on global FPI flows into India. The first news item was the second estimate of Q3 GDP in the US. After pegging third quarter GDP at 4.9% in the first advance estimate, the second estimate has improved upon it by 30 bps at 5.2%. Even as economists have been warning about slowing US economy in the fourth quarter, the third quarter boost to GDP takes growth to a new level altogether. This not only obviate the risk the much-feared hard landing, but also pegs the US GDP for 2023 at much higher than 2.1%. Just about a month back, the US Fed had upgraded the GDP growth from 1.1% to 2.1%. Now it is likely to get upgraded further; with positive ramifications for Indian exports and for the critical sectors like the Indian IT sector in terms of tech spending and growth visibility. That was key driver of FPI flows into India.

    

5. Finally, the US PCE (private consumption expenditure) inflation came in sharply lower by 40 bps at 3%, against 3.4% in the previous month. This looks like a much surer move towards the targeted 2% mark. While the Fed officials continue to remains hawkish, the shift is visible in the CME Fedwatch. In fact, the CME Fedwatch is now pegging the Fed to cut rates by 150 to 175 bps by the end of 2024, much higher than the 50 bps rate cut indicated by the Fed. This has positive ramifications for FPI flows into Indian equity and into Indian debt. It makes Indian debt more attractive, while it does with the risk of rate hikes by the RBI; holding equity valuations better.

In the last few weeks, FPI flows had been tentative, but the latest week to December 01, 2023 has left little to doubt. FPI flows are back in a big way at $2.2 billion in the latest week. Interestingly, this also happens at a time when India market cap entered the Big-4 club at $4 trillion. Clearly, that is not a market that FPIs would really want to ignore at this juncture.

Macro FPI flow picture up to December 01, 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	37,292.82	9,324.94	46,617.76	1,359.32	47,977.08
Aug-2023	9,232.57	3,029.71	12,262.28	6,075.54	18,337.82
Sep-2023	(14,576.40)	(191.10)	(14,767.50)	957.11	(13,810.39)
Oct-2023	(28,299.00)	3,751.34	(24,547.66)	6,672.20	(17,875.46)
Nov-2023	(368.40)	9,369.18	9,000.78	15,545.63	24,546.41
Dec-2023 #	9,621.72	122.31	9,744.03	(957.93)	8,786.10
Total for 2023	79,008.77	35,707.49	1,14,716.26	45,693.68	1,61,309.94
# – October Data is up to December 01, 2023

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

In the last 3 months i.e., September, October, and November 2023, the FPIs were net sellers in secondary market equities. FPIs sold Rs43,244 crore in secondary market equities in these 3 months. This was partially recouped by FPIs buying in the primary IPO markets worth Rs12,929 crore, while debt inflows were Rs23,176 crore. Clearly, the IPO market and the debt market have offset nearly 83% of the secondary market outflows of FPIs, but the pressure from FPI selling is still there. However, if you look at the start of December, the flows appear to be moving back from debt to equity; although a few swallows do not a summer make. If you look at a longer range picture, then the net inflows in 2023 till date, to the tune of Rs1.61 trillion has more than offset the 2022 net outflows of Rs1.33 trillion.

Daily FPI equity flows for last 4 rolling weeks

Each week we look at the last 4 rolling weeks data on FPI flows as it shows us a time series moving average of FPI flows. Check the table below for 4 weeks to December 01, 2023.

Date	FPI Flow (Rs Crore)	Cumulative flows	FPI Flow($ billion)	Cumulative flow
06-Nov-23	-85.47	-85.47	-10.26	-10.26
07-Nov-23	359.87	274.40	43.25	32.99
08-Nov-23	-312.49	-38.09	-37.53	-4.54
09-Nov-23	-893.02	-931.11	-107.25	-111.79
10-Nov-23	-1,462.36	-2,393.47	-175.59	-287.38
13-Nov-23	5,238.08	2,844.61	639.22	351.84
14-Nov-23	0.00	2,844.61	0.00	351.84
15-Nov-23	-938.04	1,906.57	-112.57	239.27
16-Nov-23	1,523.33	3,429.90	183.25	422.52
17-Nov-23	1,325.45	4,755.35	159.23	581.75
20-Nov-23	-372.74	4,382.61	-44.77	536.98
21-Nov-23	-598.73	3,783.88	-71.85	465.13
22-Nov-23	-152.50	3,631.38	-18.29	446.84
23-Nov-23	-1,364.76	2,266.62	-163.76	283.08
24-Nov-23	1,433.66	3,700.28	171.99	455.07
27-Nov-23	0.00	3,700.28	0.00	455.07
28-Nov-23	2,522.82	6,223.10	302.62	757.69
29-Nov-23	1,786.47	8,009.57	214.23	971.92
30-Nov-23	4,313.30	12,322.87	517.69	1,489.61
01-Dec-23	9,744.03	22,066.90	1,169.05	2,658.66

Data Source: NSDL

In the week to December 01, 2023, FPIs were back with a bang, infusing $2.2 billion into Indian equities, with the inflows equally distributed between primary and secondary markets. Here is a quick look at the FPI flows story on a weekly basis.

• In the previous 5 rolling weeks, FPI witnessed inflows of $127 million, inflows of $869 million; outflows of $(697) million, $(913) million, and $(987) million. The latest week saw net FPI inflows of a whopping $2,204 million, reinforcing the trend of the last 2 weeks, when FPIs had turned net buyers after a gap of a full 11 weeks.

   

• If you look at the last 4 rolling weeks on a cumulative basis, total net FPI inflows into Indian equities were to the tune of Rs22,067 crore or $2,659 million. However, 83% of the flows of the last 4 weeks came in the latest week to December 01, 2023.

What will drive FPI flows in the coming weeks?

There will be 2 key drivers of FPI flows in the next week.

• The big trigger in the coming week will be the RBI monetary policy that will be announced on December 08, 2023. That will be a Friday, so most of the impact would be felt on that day. However, the issue is not so much about rates, which is likely to stay put; or about stance, which is likely to remain moderate. The focus would be on whether RBI upgrades its GDP estimates after the stellar GDP numbers for Q2 and by how much?

   

• Needless to say, the RBI will also be absorbing some of the impact of the previous week data flows like the GDP announcements and the PCE inflation in the US. Undertone of FPI flows promises to remain positive.

It looks like the undertone of FPI view on India has finally turned for the positive. The next few weeks will confirm if the shift is for real.