Weekly Musings – FPI flows for week ended July 19, 2024

20 Jul 2024 , 09:36 AM

FPIS NET EQUITY BUYERS FOR SIXTH SUCCESSIVE WEEK

After infusing $885 Million, $953 Million, $1.41 Billion, $1.83 Billion, and $1.72 Billion in the previous five weeks, the FPI inflows continued in the latest week to July 19, 2024. In fact, the inflows were sharply higher at $1,845 Million for the week, as FPIs remained net buyers on all the 4 trading days. For the last 6 weeks since the new government (Modi 3.0) took oath of office, FPI inflows have been to the tune of $8.65 Billion. After tapering for the previous two weeks, the FPI flows were at the best level of the last 6 weeks at $1.85 Billion. With the concerns over slowing reforms and coalition hassles now addressed, there appears to be a clear sense of confidence returning among FPIs. One area to watch would be the full budget, this is likely to be announced on July 23, 2024.

FPI flows have been generally positive for six weeks in a row and that appears to be a vote for political stability. However, the big flows are yet to come and that may predicate on the full budget. However, the government may not announce too many big changes in this budget and may wait to make a splash in its forthcoming budget in February 2025. Currently, it will be more of completing the unfinished job of the interim budget and convincing the investor community that the Indian growth story was on track. If that message is sent out, the FPI flows of the last six weeks may eventually turn into a deluge.

WHY INDIA NEEDS TO WORRY ABOUT WPI INFLATION

For the latest month to June 2024, the wholesale price inflation (WPI) came in sharply higher at 3.36%. In fact, the WPI inflation has been rising continuously for the last 5 months in a row and that has few key implications. If you break up the WPI inflation, the WPI food inflation is sharply up and that is not surprising considering that food prices are elevated across the board, even at a CPI level. However, there are two other indicators within WPI inflation that are slightly worrying. The non-food primary inflation comprising of minerals and mined products has been steadily rising in the last 5 months. In addition, the manufacturing inflation, with weightage of 64.2% in the WPI basket is trending higher.

This has bigger implications for two reasons. Firstly, it means that the input costs for most industries are going up and that is likely to trigger cost push inflation in India. Secondly, most of the industries have now got into a situation where demand has shrunk and the pricing power is not like what it was a few quarters back. Hence the freedom that companies had to raise prices do not exist any longer. Hence, companies have to now prepare for thinner margins as they may have to absorb more of these input cost spikes, putting pressure on profitability. Whether this impels the RBI to move quickly on rate cuts, remains to be seen and may influence the trajectory of RBI policy in August and October.

MACRO FPI FLOW PICTURE UP TO JULY 19, 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) #	29,057.31	1,714.43	30,771.74	9,560.33	40,332.07
Total for 2024 (₹ Crore)	(3,448.12)	37,420.45	33,972.33	96,165.99	1,30,138.32
For 2024 ($ Million)	(397.43)	4,497.69	4,100.26	11,568.31	15,668.57
# – Recent Data is up to July 19, 2024

Data Source: NSDL (Negative figures in brackets)

FPIs remained aggressive net buyers in the week to July 19, 2024 at $1,845 Million after being net buyers to the tune of $885 Million, $953 Million, $1,724 Million, $1,825 Million, and $1,405 Million in the previous 5 weeks. For calendar 2024 so far, FPIs were net buyers to the tune of $15,668.57 Million. Out of this figure, FPIs net bought equities worth $4,100.26 Million and were net buyers in debt to the tune of $11,568.31 Million. For 2024, till date, net debt market inflows accounted for 73.8% of the total net FPI flows into India. In short, year 2024 has been more about debt flows and less about equity flows; although the dominance of debt flows have fallen from above 95% to under 75%. As of the close of July 19, 2024, the FPIs were still net sellers in secondary market equities worth $(397.43) Million, while the buying in IPOs more than compensated for that at $4,497.69 Million.

In the latest week to July 19, 2024, FPIs were again net buyers worth $1,845 Million. This is positive for the sixth week in a row. While flows were tapering till the previous week, they bounced back in the latest week to the highest inflow in last 6 weeks, despite it being a truncated 4-day trading week. Prior to the new government formation, the FPIs were persistently on the sell side of Indian equities. Sentiments have turned positive in the last 6 weeks post the Modi 3.0 government assumed office. There are several triggers that the Fed is waiting for. Apart from a Fed rate cut and a progressive full budget, the FPIs want an assurance from the government that India would not falter in its commitment to reforms.

FPI SENTIMENTS – THE WEEK THAT WAS

For the latest week to July 19, 2024, FPIs were net buyers to the tune of $1,845 Million. For 6 weeks in a row, the FPIs have been net buyers in equity; infusing $8.65 Billion in the process. Here is what drove FPI sentiments this week.

• There was a good deal of pre-budget buying in the market as the FPIs infused $1.85 Billion in a truncated week with just 4 trading sessions. Investors are still unsure of what the full budget will comprise of, but there appear to be some clues. For one, the budget is likely to reiterate its reformist stance. Secondly, the markets also expect that in the light of the higher than expected RBI dividend and robust tax flows, the government may hold the fiscal deficit at around 5.0% for FY25. Also, the government is expected to raise the capex spending growth from the reduced 11% to close to 15-20%. While no major reforms are expected to be announced, these should be good enough to boost markets.
• The WPI inflation at 3.36% showed a sharp spike in the last five months. The spike in the WPI inflation has been triggered by a mix of higher wholesale food prices and a spike in manufacturing costs. The latter is expected to put pressure on the costs of Indian companies and could put them in a fix due to margins already being quite thin. The only way out is that the RBI cuts repo rates so that the Indian corporates get the benefit of lower borrowing costs. While the WPI inflation is slightly worrisome, the positive side is that it may push the RBI to move faster on cutting repo rates.
• The Ministry of Commerce also reported the trade numbers for the month of June. The merchandise trade deficit narrowed from $23.8 Billion in May 2024 to $21.0 Billion June 2024. While the exports continue to take a hit on global trade movement crisis, that has also led to a much sharper fall in imports. On a net basis, the overall trade deficit, after adjusting the services surplus, was also lower in June $8 Billion compared to $10.90 Billion in the pervious month. Effectively, the services surplus has been able to offset a good deal of the merchandise trade deficit. But the biggest positive takeaway was that the export basket in June 2024 was actually dominated by higher value items like engineering goods and electronic goods, which is a sign of better export value addition.
• IT companies have managed to beat street estimates and they have been the surprise package of the first quarter of Q1-FY25. After TCS beat market estimates in the previous week, the current week also saw Infosys getting the better of street estimates. Its sequential profits were 4% higher in the June quarter, but more importantly, the guidance at 3-4% constant currency (CC) growth in revenues is much better than the conservative estimates given out last year. Even the EBIT margins of Infosys improved by 100 bps, indicating that frontline IT stocks are back in action.
• One concern in the upcoming full budget is that the food subsidies may spike by 11% in the full fiscal year FY25. The food subsidy bill is likely to be pegged at ₹2.25 Trillion, while the fertilizer subsidy bill is likely to be pegged lower at ₹1.63 Trillion. On an overall basis, the food and fertilizer subsidy bill is jointly higher by 5% compared to the estimates in the interim budget. However, with a massive RBI dividend to fall back upon and robust tax flows, this is unlikely to post any major concern for the financial balance of the full Union Budget. In a sense, the higher food subsidy bill is on account of the higher minimum support price (MSP) that has been promised to the farmers.
• It finally looks like endgame for one of the most celebrated edtech players in India. The NCLT accepted referring Byju’s to insolvency based on a petition filed by BCCI. The Board of Control for Cricket in India (BCCI) has petitioned the NCLT against Byju’s over the unpaid sponsorship dues of Byju’s for the ICC T20 league, which was once sponsored by Byju’s. In the last few months, Byju’s has been under tremendous debt and cash flow pressures. The reference to insolvency means that Byju Raveendran losses control of the company as it passes to the insolvency Resolution Professional (IRP). Byju’s has called for an urgent hearing at the NCLT Appellate Tribunal (NCLAT), but that may not make much of a difference for Byju’s and his venture.

It was a relatively subdued week of data flows, and the coming week will see big data flows like the full Union Budget and key triggers from the US market.

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
24-Jun-24	1,797.66	1,797.66	215.07	215.07
25-Jun-24	860.42	2,658.08	103.03	318.10
26-Jun-24	2,464.98	5,123.06	295.47	613.57
27-Jun-24	1,513.23	6,636.29	181.13	794.70
28-Jun-24	7,757.97	14,394.26	929.22	1,723.92
01-Jul-24	1,553.37	15,947.63	186.14	1,910.06
02-Jul-24	-494.08	15,453.55	-59.24	1,850.82
03-Jul-24	-2,507.09	12,946.46	-300.20	1,550.62
04-Jul-24	3,898.51	16,844.97	466.70	2,017.32
05-Jul-24	5,511.54	22,356.51	660.05	2,677.37
08-Jul-24	3,169.45	25,525.96	379.57	3,056.94
09-Jul-24	161.67	25,687.63	19.37	3,076.31
10-Jul-24	1,528.18	27,215.81	183.05	3,259.36
11-Jul-24	2,183.95	29,399.76	261.58	3,520.94
12-Jul-24	346.92	29,746.68	41.53	3,562.47
15-Jul-24	5,367.76	35,114.44	642.55	4,205.02
16-Jul-24	3,337.89	38,452.33	399.44	4,604.46
17-Jul-24	0.00	38,452.33	0.00	4,604.46
18-Jul-24	1,660.80	40,113.13	198.71	4,803.17
19-Jul-24	5,052.87	45,166.00	604.12	5,407.29

Data Source: NSDL

FPIs were net buyers for the sixth 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 $885 Million, $953 Million, $1,724 Million, $1,825 Million, and $1,405 Million. In the latest week to July 19, 2024 net FPI inflows were $1,845 Million into equities; infusing $8.65 Billion in last 6 weeks.
• If you look at the last 4 rolling weeks on a cumulative basis, total net FPI inflows into equities were at ₹45,166 Crore or $5,407 Million. This number turned positive for equities only four weeks ago, after a long gap. FPIs net bought debt in this week.

TRIGGERS FOR FPI FLOWS IN COMING WEEKS?

The broad focus of the FPIs would be on the full budget presentation on July 23, 2024, but there will be other triggers too. Apart from the fine print of the full budget, the FPI flows will also predicate on global factors like the US GDP growth for Q1, PCE inflation for June 2024 and the July Fed policy on the last day of the month. The immediate trigger, of course, would be a reformist undertone in the full budget presentation.