FORGET ELECTIONS; IT IS OVER TO GOVERNANCE
A lot has changed in the last one week. Just last Saturday, the markets and analysts were gloating over the possibility that the NDA would form a majority government for the third time in a row. At least, that is what the exit polls seemed to indicate. However, reality has a nasty way of coming back to haunt the smuggest of estimates and that is exactly what happened. The exit polls were projecting that the NDA would get between 370 and 400 seats while the combine actually got just 292 seats. That was still enough to form the government, but nothing close to what the markets had imagined. The BJP itself got only 240 seats, which means the BJP cannot technically form the government on its own and will require the support of its allies like the TDP and JDU. Concerns were expressed that allies would tie the hands of the government, which meant that reforms like growth, foreign investments and fiscal deficit control could take a back seat. That led to the sharp sell-off in the week, resulting in FPIs turning net sellers to the tune of nearly $1.78 Billion in the week.
However, scratch the surface and things are not all that disappointing. While the new government, being a coalition government, may have to accommodate some of the wishes of allies, it would be nothing like allies dictating terms. At least, the current prime minister is unlikely to allow anything like that to happen. Mr. Modi has already underlined in his post-election speeches that the endeavour to focus on investments, growth and fiscal prudence would be as before. In short, there is nothing like the reforms process was about to be derailed. Perhaps, the markets and the FPIs will get a lot more confidence once they see the final budget presented in July 2024. For now, it looks like business as usual.
REAL ACTION WAS IN THE US MARKETS
In the fervour surrounding the general elections in India and the outcome, most investors and analysts forgot that some of the most important cues for the markets this week came from the US markets. For instance, the jobs data came in much stronger than expected underlining the fact that US growth would continue to remain robust. Now, there is a problem. If the US growth remains robust, it is unlikely that the US would go ahead and cut rates any time soon. Even the CME Fedwatch probabilities of a rate cut in September is now down to 40%, with July rate cut almost ruled out. That resulted in a sharp spike in the US bond yields and a much sharper spike in the US dollar index (DXY). After all, if rates are likely to remain higher for longer; then it means harder yields and a stronger dollar.
The immediate outcome of this better than expected data in the US was visible on 3 areas. Firstly, with strong growth the US was only likely to churn more oil and keep prices in check globally. It was not surprising that during the week, the crude prices fell below $80/bbl for the first time since February 2024. The second big story was the 8.6% rally in IT stocks in the week, largely on the back of dollar strength and robust US growth, which is likely to boost demand for IT services and also enhance IT spending. The third trend was the surprising 7.1% rally in the FMCG stocks in India this week. That does not happen too often. FMCG stocks gained from lower crude prices, but also from hopes that a turnaround in global demand and exports could finally bring about a genuine revival in rural demand. In the melee of elections and the outcome, these trends were possibly missed out. It is not time for a shift from politics and back to serious business.
MACRO FPI FLOW PICTURE UP TO JUNE 07, 2024
The table captures monthly FPI flows into equity and debt for 2022, 2023, and 2024.
Calendar
Month |
FPI Flows Secondary | FPI Flows Primary | FPI Flows Equity | FPI Flows Debt/Hybrid | Overall FPI Flows |
Calendar 2022 (₹ Crore) | (146,048.38) | 24,608.94 | (121,439.44) | (11,375.78) | (132,815.22) |
Calendar 2023 (₹ Crore) | 1,27,759.75 | 43,347.14 | 1,71,106.89 | 65,954.38 | 2,37,061.27 |
Jan-2024 (₹ Crore) | (28,863.89) | 3,120.34 | (25,743.55) | 19,150.21 | (6,593.34) |
Feb-2024 (₹ Crore) | (3,194.72) | 4,733.60 | 1,538.88 | 30,277.95 | 31,816.83 |
Mar-2024 (₹ Crore) | 29,152.54 | 5,945.78 | 35,098.32 | 16,987.88 | 51,996.20 |
Apr-2024 (₹ Crore) | (23,331.04) | 14,659.77 | (8,671.27) | (7,588.75) | (16,260.02) |
May-2024 (₹ Crore) | (30,613.87) | 5,027.54 | (25,586.33) | 12,675.47 | (12,910.86) |
Jun-2024 (₹ Crore) # | (15,360.73) | 566.50 | (14,794.23) | 4,439.14 | (10,355.09) |
Total for 2024 (₹ Crore) | (72,211.71) | 34,053.53 | (38,158.18) | 75,851.90 | 37,693.72 |
For 2024 ($ Million) | (8,631.91) | 4,094.47 | (4,537.44) | 9,136.35 | 4,598.91 |
# – Recent Data is up to June 07, 2024 |
Data Source: NSDL (Negative figures in brackets)
FPIs were again net sellers in the week to June 07, 2024 at $1,768 Million, after being net sellers in equities to the tune of $424 Million in the previous week. For calendar 2024 overall, FPIs were net buyers to the tune of $4,598.91 Million. For 2024 till date, FPIs net sold equities worth $(4,537.44) Million and were net buyers in debt to the tune of $9,136.35 Million. As of the close of June 07, 2024, the FPIs were still net sellers in secondary market equities worth $(8,631.91) Million, while the buying in IPOs partially compensated for that at $4,094.47 Million.
In the latest week to June 07, 2024, FPIs remained net sellers to the tune of $1,768 Million after being net sellers in the previous week to the tune of $424 Million. In the 3 weeks prior to that; FPI were net buyers of $744 Million, net sellers of $1.34 Billion, and net sellers of $2.18 Billion respectively. It may have been a tumultuous week, but the political uncertainty is finally over and that is evident in the VIX falling sharply from above the 26 levels to around the 16 levels in a single week. Most likely, the VIX would temper a lot more as FPIs unwind most of their protective positions in the coming week.
FPI SENTIMENTS – THE WEEK THAT WAS
For the latest week to June 07, 2024, FPIs were net sellers to the tune of $1,768 Million. FPIs were cautious; with most of the selling happening in the second half of the week after the election results came out. Here is what drove FPI sentiments this week.
The big GDP and fiscal deficit data for FY24 were announced on Friday last week; and part of that impact was also seen in the sharp market recovery in this week.
DAILY FPI EQUITY FLOWS FOR LAST 4 ROLLING WEEKS
Here is the last 4 rolling weeks data on FPI flows as it shows us a time series moving average of FPI flows.
Date | FPI Flow (₹ Crore) | Cumulative flows | FPI Flow($ Million) | Cumulative flow |
13-May-24 | -1,292.15 | -1,292.15 | -154.76 | -154.76 |
14-May-24 | -4,392.53 | -5,684.68 | -525.90 | -680.66 |
15-May-24 | -2,513.07 | -8,197.75 | -300.89 | -981.55 |
16-May-24 | -2,338.84 | -10,536.59 | -280.07 | -1,261.62 |
17-May-24 | -622.33 | -11,158.92 | -74.52 | -1,336.14 |
20-May-24 | 0.00 | -11,158.92 | 0.00 | -1,336.14 |
21-May-24 | 2,180.71 | -8,978.21 | 261.23 | -1,074.91 |
22-May-24 | -1,877.28 | -10,855.49 | -225.19 | -1,300.10 |
23-May-24 | 0.00 | -10,855.49 | 0.00 | -1,300.10 |
24-May-24 | 5,891.71 | -4,963.78 | 707.88 | -592.22 |
27-May-24 | -937.08 | -5,900.86 | -112.74 | -704.96 |
28-May-24 | 696.16 | -5,204.70 | 83.79 | -621.17 |
29-May-24 | 2,134.54 | -3,070.16 | 256.66 | -364.51 |
30-May-24 | -4,311.41 | -7,381.57 | -517.41 | -881.92 |
31-May-24 | -1,122.05 | -8,503.62 | -134.50 | -1,016.42 |
03-Jun-24 | 2,177.66 | -6,325.96 | 261.42 | -755.00 |
04-Jun-24 | 6,847.12 | 521.16 | 824.29 | 69.29 |
05-Jun-24 | -12,243.91 | -11,722.75 | -1,466.30 | -1,397.01 |
06-Jun-24 | -4,804.39 | -16,527.14 | -576.14 | -1,973.15 |
07-Jun-24 | -6,770.71 | -23,297.85 | -811.20 | -2,784.35 |
Data Source: NSDL
FPIs stayed net sellers this week, accentuating the trend of the previous week. Before that, the FPIs were net buyers for 1 week and net sellers for 5 weeks in a row. The next big data point for the FPIs would be the full budget and the current account deficit for FY24.
TRIGGERS FOR FPI FLOWS IN COMING WEEKS?
While the immediate focus of the FPIs would be on the government formation, allocation of portfolios and the delicate balance between the ruling BJP and its allies; there is more coming up. The big data point for the FPIs would be the current account deficit (CAD) to GDP ratio for FY24 (to be announced later this month), and the full budget in July 2024. These are surely interesting times ahead!
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