Weekly Musings – FPI flows for week ended July 12, 2024

15 Jul 2024 , 09:41 AM

FPIS NET EQUITY BUYERS FOR FIFTH SUCCESSIVE WEEK

After infusing $953 Million, $1.41 Billion, $1.83 Billion, and $1.72 Billion in the previous four weeks, the FPI inflows continued in the latest week to July 12, 2024. However, the inflows were relatively subdued at $885 Million for the week, although FPIs remained net buyers on all the trading days. For the last 5 weeks since the new government (Modi 3.9) took oath of office, FPI inflows have been to the tune of $6.80 Billion. The flows may be progressively tapering, but FPI inflows have averaged $1.35 Billion a week in the last five weeks. With the concerns over slowing reforms and coalition hassles now addressed, there appears to be a sense of confidence returning to FPI sentiments. The FPIs may still want to see the colour of the full budget before committing larger inflows into the Indian equity markets.

Macros have been extremely favourable in the interim period. If we look at the flow of macros since the end of May 2024, there has been a slew of good news. For starters, the GDP growth for FY24 came in at 8.2%, reinforcing India’s position as the fastest growing large economy in the world. Secondly, the fiscal deficit was pruned further in FY24 to 5.6% of GDP and the RBI dividend promises to take the FY25 fiscal deficit to below the 5% mark. The current account deficit (CAD) was restricted to just 0.7% of GDP in FY24; thanks to a stellar current account surplus in the fourth quarter of FY24. In more granular data, the core sector growth and IIP growth have been robust, although inflation has shown signs of hardening in the month of June 2024. If the government can underline its reforms commitment in the full budget, it would set the stage for the FPIs to return in a big way.

TALE OF 2 INFLATIONS: US AND INDIA DIVERGE

It was a tale of two inflations in the previous week. The US consumer inflation fell sharply by 30 bps from 3.3% to 3.0%. There was some sobering in the oil inflation, which had been the moot point for the Fed when it comes to rate cut decisions. Now it looks like the first rate cut of this year should happen in September 2024, and also opens up the possibility of 2 pre-emptive rate cuts by the Fed in the current year. However, the inflation experience for India was quite the opposite in the month of June 2024.

The pressure of food prices once again showed up in the month of June with the consumer inflation in India jumping to 5.08%, after staying under 5% for 3 months in a row. Also, the May 2024 inflation estimate got revised upwards from 4.75% to 4.80%. The key factor in the inflation spike in June 2024 was food inflation which again spiked from 8.69% to 9.36% on a sequential basis. That would put a lot of pressure on the RBI to go slow on rate cuts even assuming that the US Fed does cut rates in September. The markets were expecting the RBI to cut rates in August or in October this year. Now, with the spike in CPI inflation, the August rate cut looks unlikely. After having an edge over the Fed in terms of distance to the target inflation rate; now, India is also more than 100 bps away from the target inflation rate.

MACRO FPI FLOW PICTURE UP TO JULY 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)	(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) #	14,155.94	1,196.48	15,352.42	4,278.86	19,631.28
Total for 2024 (₹ Crore)	(18,349.49)	36,902.50	18,553.01	90,884.52	1,09,437.53
For 2024 ($ Million)	(2,180.27)	4,435.71	2,255.44	10,936.63	13,192.07
# – Recent Data is up to July 12, 2024

Data Source: NSDL (Negative figures in brackets)

FPIs remained aggressive net buyers in the week to July 12, 2024 at $885 Million; after being net buyers to the tune of $953 Million, $1,724 Million, $1,825 Million, and $1,405 Million in the previous 4 weeks. For calendar 2024 so far, FPIs were net buyers to the tune of $13,192.07 Million. Out of this figure, FPIs net bought equities worth $2,255.44 Million and were net buyers in debt to the tune of $10,936.63 Million. For 2024, till date, net debt market inflows accounted for 83.1% of the total net FPI flows into India. In short, year 2024 has been more about debt flows and less about equity flows. As of the close of July 12, 2024, the FPIs were still net sellers in secondary market equities worth $(2,180.27) Million, while the buying in IPOs more than compensated for that at $4,435.71 Million.

In the latest week to July 12, 2024, FPIs were again net buyers worth $885 Million. This is positive for the fifth week in a row, albeit the flows have been progressively lower in the last 4 weeks. Prior to the new government formation, the FPIs were persistently on the sell side, when it came to Indian equities. Clearly, sentiments have shifted sharply in the last 5 weeks post the new government assuming oath of office. There are several triggers that the Fed is waiting for. A reformist full budget that is growth oriented in late July and a possible rate cut by the US Fed in September Fed meet could be just what the doctor prescribed.

FPI SENTIMENTS – THE WEEK THAT WAS

For the latest week to July 12, 2024, FPIs were net buyers to the tune of $885 Million. For 5 weeks in a row, the FPIs have been net buyers in equity; infusing $6.80 Billion in the process. Here is what drove FPI sentiments this week.

• The MOSPI published the India consumer inflation for the month of June 2024. Against the street estimate of 4.9%, the actual consumer inflation came in at 5.08%, which was higher than expected. The pressure came largely from the food inflation basket, which spiked from 8.69% to 9.36% in June 2024. Also, the previous month inflation was also raised by 5 bps to 4.80% based on additional data coming in. While these may be early days still, the sharp spike in inflation rules out any likelihood of rate cuts in August. With monsoons progressing rapidly, the food inflation is expected to taper in coming months.
• Ther was good news on the IIP front. The industrial of index production for May 2024 (IIP is reported with a lag of 1 month) came in sharply higher at 5.9%. That is nearly 100 bps higher than the previous month. The spike in the IIP was largely driven by electricity and manufacturing. In fact, manufacturing IIP expanded by 70 bps over the previous month and that impact tends to get magnified due to the high weightage of 77.63% that manufacturing has on the IIP. It was not just the yoy IIP growth, but even the high frequency MOM IIP growth was in positive territory.
• US consumer inflation for the month of June 2024 was also announced during the week. On the positive side, the US inflation came in 30 bps lower at 3.0% as compared to 3.3% in the previous month. For the last few months, the CPI inflation in the US was stuck in a range and this is a positive signal that the inflation has fallen sharply in the latest month. The good news is that energy inflation has sobered in the month, something that has been the real challenge for the US economy. If the PCE inflation also falls in tandem, then it opens the floodgates for the Fed to cut rates in September, as indicated by the CME Fedwatch. In that case, the Fed may also consider one more rate cut in 2024.
• In the Indian markets, it was a week of contrasting sectoral triggers. The banks and automobile stocks came under pressure, especially in the aftermath of the higher than expected inflation data for June. While the inflation data was announced only late on Friday, a higher level of inflation had already been factored into estimates. This had a negative impact on the rate sensitive stocks like autos, banks, and realty. However, there were positive cues from the IT sector and the oil & gas sector; both of which did extremely well in the week. However, the pick of the week was the FMCG sector, which led the gainers with 3.5% gains on the back of an expected revival in rural demand.
• Mutual fund flows into equities in the month of June 2024 were robust, although treasury pressures resulted in net outflows from debt funds. Equity funds saw record inflows of ₹40,608 Crore, which was largely driven by sectoral and thematic funds. The month of June 2024 also saw record inflows into systematic investment plans (SIPs) at ₹21,262 Crore; the third month in a row that SIP flows have been above the 20K mark. Even NFO flows were robust at over ₹15,600 Crore on the back of robust NFO flows into sectoral and thematic funds. The moral of the story is that even if FPI flows falter, the domestic flows are strong enough. This should give confidence to FPIs too.
• According to a recent report by Jefferies, Reliance Jio could list in 2025 at a valuation of approximately $112 Billion or higher. That would largely depend on the tariff hikes and if these tariff hikes sustain then Jio could even get better valuations. From the perspective of Reliance Industries, this could result in an upside of nearly 15% for the stock, although the holding company hurdle could constrain valuations partially. As far as FPI flow impact is concerned, what is good for Reliance is good for markets, and therefore, good for the FPI sentiments too.

It was a relatively strong week of data flows, and the coming week will see further data cues like the WPI inflation and the trade data being announced.

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
17-Jun-24	0.00	0.00	0.00	0.00
18-Jun-24	3,234.51	3,234.51	387.15	387.15
19-Jun-24	1,576.35	4,810.86	188.82	575.97
20-Jun-24	9,175.54	13,986.40	1,099.85	1,675.82
21-Jun-24	1,247.64	15,234.04	149.38	1,825.20
24-Jun-24	1,797.66	17,031.70	215.07	2,040.27
25-Jun-24	860.42	17,892.12	103.03	2,143.30
26-Jun-24	2,464.98	20,357.10	295.47	2,438.77
27-Jun-24	1,513.23	21,870.33	181.13	2,619.90
28-Jun-24	7,757.97	29,628.30	929.22	3,549.12
01-Jul-24	1,553.37	31,181.67	186.14	3,735.26
02-Jul-24	-494.08	30,687.59	-59.24	3,676.02
03-Jul-24	-2,507.09	28,180.50	-300.20	3,375.82
04-Jul-24	3,898.51	32,079.01	466.70	3,842.52
05-Jul-24	5,511.54	37,590.55	660.05	4,502.57
08-Jul-24	3,169.45	40,760.00	379.57	4,882.14
09-Jul-24	161.67	40,921.67	19.37	4,901.51
10-Jul-24	1,528.18	42,449.85	183.05	5,084.56
11-Jul-24	2,183.95	44,633.80	261.58	5,346.14
12-Jul-24	346.92	44,980.72	41.53	5,387.67

Data Source: NSDL

FPIs were net buyers for the fifth week in a row, with the political uncertainty coming to an end and the VIX stabilizing at lower levels. Here are some key FPI data takeaways.

• In previous 5 rolling weeks, FPIs had seen net inflows of $953 Million, $1,724 Million, $1,825 Million, $1,405 Million, and net outflows of $1,768 Million. In the latest week to July 12, 2024 net FPI inflows were $885 Million into equities.
• If you look at the last 4 rolling weeks on a cumulative basis, total net FPI inflows into equities were at ₹44,981 Crore or $5,388 Million. This number turned positive for equities only three weeks ago, after a long gap. FPIs net sold debt in the latest week.

TRIGGERS FOR FPI FLOWS IN COMING WEEKS?

While the broad focus of the FPIs would be on the full budget presentation in the last week of July, there are other triggers too. With TCS beating estimates, we are already seeing a re-rating of IT companies. That is likely to set the tone for Q1 results. The FPIs will also be focusing on the PCE inflation for June, US GDP data second estimate and the Fed policy statement on the last day of July. All these will set the tone for a possible rate cut in September by the US Fed; a move that could trigger a surge of FPI flows into India.