Weekly Musings – FPI flows for week ended July 14, 2023

17 Jul 2023 , 06:50 AM

It may be recollected that May 2023 saw FPI inflows of $5.30 billion and June 2023 witnessed FPI inflows of $5.74 billion. After a massive inflow of $11 billion from FPIs into Indian equities in just 2 months of May and June, one would have logically expected the flows to slow down in July. However, if anything, the flows have only added more momentum. For instance, in the first 2 weeks of July 2023, the FPIs have already infused $3.73 billion into Indian equities and if the tempo is maintained then FPI flows in July should better the median flows of May and June 2023. In rupee terms, the FPI flows in the first two weeks of July 2023 stood at Rs30,660 crore. The week also saw some block deals, but more importantly, the positive trends of May and June have persisted in July, although the second week of July may not have been as flattering as the first week.

To sum up the FPI story, we have seen inflows of nearly $15 billion in the last 75 days just into the equity market. Debt has been a mixed bag, but we will not get into that for the time being. Several factors have led to this structural shift. First and foremost, there appears to be a global shift from managing inflation to managing growth. That is something India had already embarked after the February rate hike and that is a stand that the FPIs have really appreciated. Also, macros have been largely favourable. Inflation has been on a downtrend in India while the IIP has shown a sharp pick-up, led by manufacturing. Also, the GDP estimates for FY24 are better than expected while the current account deficit (CAD) is likely to be more benign than apprehended. Overall, the feel good factor is working its magic on FPIs and that is translating into FPI flows into Indian equities.

Macro FPI flow picture for the week to July 14, 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 #	25,370.69	5,289.34	30,660.03	-2,179.36	28,480.67
Total for 2023 #	91,476.15	15,590.45	1,07,066.60	14,762.45	1,21,829.05
# – July Data is up to July 14, 2023

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

We now have the FPI flow data for the first two weeks of July 2023 and the FPIs are clearly and decisively buyers in equity. In the last 75 days, the FPIs have infused close to $15 billion into Indian equities. Now, the $34 billion FPI outflow in the nine months between October 2021 and June 2022 does not look too intimidating in retrospect. The result of the deluge of FPI flows in the last 75 days has been that now FPIs are net buyers in India to the tune of more than Rs1 trillion in calendar year 2023, despite starting off with heavy selling in January 2023. Debt flows continue to be volatile, but the equity story clearly appears to favour FPI flows into India. (Live equity action on markets page). Let us now look at some the key triggers for robust FPI flows.

• The latest US inflation number at 3% is much lower than expected. Now, US inflation has fallen by 190 basis points in the last 2 months despite the Fed pausing in June. The decision to allow rate hikes to seep into inflation appears to be working. While the Fed may not be done with rate hikes, one thing is certain that the Fed is very close to the top. That is giving a lot of confidence to the FPIs that globally the problem of inflation is finally coming under control and that bodes well for equities as an asset class.

   

• Like it or not, the Goldilocks effect is playing to India’s favour. The inflation, even if you discount the spike in June, has been trending lower. That is what the WPI inflation is indicating, which means the CPI inflation should follow soon. That is good news. Also, there is a sharp pick-up in IIP in the last two months, but the granular data is more interesting. There is a clear turnaround in the capital investment cycle and there is a revival in consumer demand. At least, the India centric sectors are doing very well.

   

• Recent trade data suggests that the overall deficit is finally coming to less than $10 billion per month on an average. Things will still get better as the services surplus improves from here, but that may take time. What this means is that the risk of a spurt in current account deficit is much lower in FY24 compare to what it was in FY23. That is a positive trigger for rating agencies and global investors as it also hints at a stable rupee.

   

• One factor that has favoured the FPI sentiments in recent weeks is the weakness in the dollar. The dollar index (DXY) dipped below 100 after the US inflation for June came in at 3%. That has given stability to the rupee value and FPIs can rest assured that the dollar value of their rupee investments would now be protected. That is good news.

The calendar year 2023 started off on a dull note in terms of FPI flows. However, things reversed from March and April and by the end of the second week of July 2023, FPIs have been net buyers of $13.10 billion into equities and about $1.70 billion in debt. This is after offsetting the massive selling that FPIs witnessed in January and February 2023.

Colour of daily FPI equity flows for last 4 rolling weeks

The table below gives a granular picture of daily flows into Indian equities over last 4 rolling weeks; in rupee and in dollar terms. The latest week has been shaded.

Date	FPI Flow (Rs Crore)	Cumulative flows	FPI Flow($ billion)	Cumulative flow
19-Jun-23	181.15	181.15	22.12	22.12
20-Jun-23	1,756.21	1,937.36	214.26	236.38
21-Jun-23	5,866.41	7,803.77	714.40	950.78
22-Jun-23	5,508.03	13,311.80	670.94	1,621.72
23-Jun-23	946.28	14,258.08	115.51	1,737.23
26-Jun-23	199.33	14,457.41	24.29	1,761.52
27-Jun-23	-349.33	14,108.08	-42.62	1,718.90
28-Jun-23	1,830.64	15,938.72	223.35	1,942.25
29-Jun-23	0.00	15,938.72	0.00	1,942.25
30-Jun-23	14,803.87	30,742.59	1,805.08	3,747.33
03-Jul-23	11,849.68	42,592.27	1,444.32	5,191.65
04-Jul-23	2,456.38	45,048.65	300.06	5,491.71
05-Jul-23	2,515.33	47,563.98	306.87	5,798.58
06-Jul-23	2,289.64	49,853.62	278.67	6,077.25
07-Jul-23	2,832.79	52,686.41	343.55	6,420.80
10-Jul-23	870.68	53,557.09	105.31	6,526.11
11-Jul-23	1,059.33	54,616.42	128.20	6,654.31
12-Jul-23	1,469.15	56,085.57	178.40	6,832.71
13-Jul-23	-333.60	55,751.97	-40.55	6,792.16
14-Jul-23	5,650.65	61,402.62	688.10	7,480.26

Data Source: NSDL

The week to July 14, 2023 saw FPI flows of $1.06 billion with bulk of the flows coming on the last day of the week. Based on the 4 weeks of rolling FPI flows into equities, here are some interesting inferences.

• In the last 3 rolling weeks, FPI infusion into Indian equities has been $1,737 million, $2,010 million, and $2,673 million respectively. In the latest week to July 14, 2023, the FPI flows into Indian equities were relatively lower at $1,059 million, but robust.

   

• For the week to July 14, 2023, the FPI net inflows into equities stood at Rs8,716 crore or $1.06 billion. This is lower than the last few weeks, but understandable considering the levels of the Nifty and the Sensex.

   

• If you look at the last 4 rolling weeks on a cumulative basis, total FPI flows into Indian equities were Rs61,402 crore or $7.48 billion. FPI sentiments are also buoyed by relative valuations versus other EMs.

In the last 4 weeks, FPIs have been consistently on the buy side of Indian equities, while the selling occasions have been few and far between. 

Big stories for FPIs to bet on from here

One factor that will still play on the minds of FPIs is the persistent global hawkishness and that is not changing easily. Hopefully, the sharply lower inflation in the US may be the first indication that global central banks may now reduce their obsession with inflation. The undertone still remains hawkish, but the Fed has hinted that too much of front-ending is now ruled out. The concerns over monsoons have abated as deficiency has reduced, but baddy and pulses output still remain a concern. The spike in inflation to 4.81% in June 2023 was largely a result of agricultural inflation. FPIs would be concerned about the likely impact on RBI stance and also the impact on rural demand in sectors like FMCG, two-wheelers, tractors, and consumer goods. 

If one looks at the sectoral colour of FPI flows in June 2023, the FPIs are making a big bet on a revival in the capital investment cycle. That is a long term positive for Indian positive and it is not too surprising considering the overflowing order books of the capital goods companies. FPIs may have doubts on the market levels and valuations, but for now, they are firmly on the buy side.