FOCUS SHIFTS TO THE FULL BUDGET IN JULY 2024
For the week, FPIs infused $1.41 billion into Indian equities and remained net buyers on all trading days. These are early days, so it is hard to say if this representative of the trend or just a small blip. But the fact remains that a lot has changed in the last 3 weeks. Just two weeks back, the stock markets were virtually celebrating since the exit polls had hinted at brute majority for the government. The expectation was that the NDA combine would get close to 400 seats or even more. However, hopes were quickly dashed as the actual results were below expectations. The NDA got less than 300 seats and the BJP, on its own, fell short of majority with about 240 seats. But, then, politics is the art of the possible; and that is what we got to witness in the latest week to June 14, 2024.
With the Modi 3.0 government taking oath and all its allies sticking with the NDA, the government formation was just a cakewalk. There were some rumbles about the allocation of portfolios, but that is par for the course, For now, the big action point shifts to what will the government do in the full budget. For starters, the budget is more likely to presented in the third or fourth week of July as it would give the government some time to accommodate more views and also take care of the coalition realities. However, the undertone of growth, capital investments and fiscal prudence is unlikely to change. So, expect a bigger push for capex, more focus on exports and even an attempt to trim the fiscal deficit quicker towards the 4.5% FY26 target. The budget remains the one document to watch out for.
FED HINTS AT JUST ONE RATE CUT IN 2024
While the Fed had dragged its feet for a long time in biting the bullet, this postponement of rate cuts was always coming. There was a clear disconnect between the apparent hawkish tone of the Federal Open Markets Committee (FOMC) and the assurances offered by the Fed chair, Jerome Powell, about the likelihood of 3 rate cuts in 2024. In the latest monetary policy statement in June, the Fed has explicitly admitted that only 1 rate cut would be feasible in 2024, although the Fed could look at more aggressive rate cuts in 2025. That was on the cards, considering that the Fed was planning its first rate cut only in September and it would have hardly left the Fed with enough time to execute two more rate cuts this year.
However, the more interesting cues came from the Fed quarterly update on the projections of key macros. The Fed has maintained its GDP projections and its unemployment projections at almost the same level as it did in the March estimates. However, the Fed has sharply upped its inflation estimates (headline and core). Aa a result, the equilibrium interest rate estimates have also been increased. For 2024, the year-end Fed rate estimates have been raised from 4.6% to 5.1%. At the same time, even the long run interest rate estimates have been raised by 20 bps from 2.6% to 2.8%. In short, the rates are actually going to be higher for longer as the Fed is likely to take more time to react to the inflation cues. It would wait for confirmation that fall in inflation is for real; and not a flash in the pan.
MACRO FPI FLOW PICTURE UP TO JUNE 14, 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) # | (3,730.13) | 666.37 | (3,063.76) | 7,815.88 | (4,752.12) |
Total for 2024 (₹ Crore) | (60,581.11) | 34,153.40 | (26,427.71) | 79,228.64 | 52,800.93 |
For 2024 ($ Million) | (7,238.66) | 4,106.43 | (3,132.23) | 9,540.53 | 6,408.30 |
# – Recent Data is up to June 14, 2024 |
Data Source: NSDL (Negative figures in brackets)
FPIs turned aggressive net buyers in the week to June 14, 2024 at $1,405 Million, after being net sellers in equities to the tune of $1,768 Million in the previous week. For calendar 2024 so far, FPIs were net buyers to the tune of $6,408.30 Million. For 2024 till date, FPIs net sold equities worth $(3,132.23) Million and were net buyers in debt to the tune of $9,540.53 Million. As of the close of June 14, 2024, the FPIs were still net sellers in secondary market equities worth $(7,238.66) Million, while the buying in IPOs partially compensated for that at $4,106.43 Million.
In the latest week to June 14, 2024, FPIs turned net buyers worth $1.41 Billion after being net sellers to the tune of $1.77 Billion in the previous week. In the 4 weeks prior to that; FPIs were net sellers of $424 Million, net buyers of $744 Million, net sellers of $1.34 Billion, and net sellers of $2.18 Billion respectively. The last few weeks have been tumultuous with the election related uncertainty and the spike in the VIX. However, now with the new government already being formed, that uncertainty is over. Consequently, even the VIX has fallen from a high of 28 levels to around the 12.8 levels as of the close of Friday, June 14, 2024. With the FPIs having unwound their protective positions, it remains to be seen if fresh FPI buying emerges in India or whether valuation questions continue to remain.
FPI SENTIMENTS – THE WEEK THAT WAS
For the latest week to June 14, 2024, FPIs were net buyers to the tune of $1,405 Million. Despite the election uncertainty being over, FPIs are still tentative. Here is what drove FPI sentiments this week.
It was a week of a slew of data flows. The underlying message was that the FPIs did not have any reasons to be unduly concerned about allocating fresh funds to India.
DAILY FPI EQUITY FLOWS FOR LAST 4 ROLLING WEEKS
Here is the last 4 rolling weeks data on FPI flows as it shows us a time series moving average of FPI flows.
Date | FPI Flow (₹ Crore) | Cumulative flows | FPI Flow($ Million) | Cumulative flows |
20-May-24 | 0.00 | 0.00 | 0.00 | 0.00 |
21-May-24 | 2,180.71 | 2,180.71 | 261.23 | 261.23 |
22-May-24 | -1,877.28 | 303.43 | -225.19 | 36.04 |
23-May-24 | 0.00 | 303.43 | 0.00 | 36.04 |
24-May-24 | 5,891.71 | 6,195.14 | 707.88 | 743.92 |
27-May-24 | -937.08 | 5,258.06 | -112.74 | 631.18 |
28-May-24 | 696.16 | 5,954.22 | 83.79 | 714.97 |
29-May-24 | 2,134.54 | 8,088.76 | 256.66 | 971.63 |
30-May-24 | -4,311.41 | 3,777.35 | -517.41 | 454.22 |
31-May-24 | -1,122.05 | 2,655.30 | -134.50 | 319.72 |
03-Jun-24 | 2,177.66 | 4,832.96 | 261.42 | 581.14 |
04-Jun-24 | 6,847.12 | 11,680.08 | 824.29 | 1,405.43 |
05-Jun-24 | -12,243.91 | -563.83 | -1,466.30 | -60.87 |
06-Jun-24 | -4,804.39 | -5,368.22 | -576.14 | -637.01 |
07-Jun-24 | -6,770.71 | -12,138.93 | -811.20 | -1,448.21 |
10-Jun-24 | 5,355.83 | -6,783.10 | 641.99 | -806.22 |
11-Jun-24 | 2,867.87 | -3,915.23 | 343.49 | -462.73 |
12-Jun-24 | 57.02 | -3,858.21 | 6.83 | -455.90 |
13-Jun-24 | 679.33 | -3,178.88 | 81.30 | -374.60 |
14-Jun-24 | 2,770.42 | -408.46 | 331.60 | -43.00 |
Data Source: NSDL
FPIs turned net buyers this week, with the political uncertainty coming to an end and the VIX stabilizing. Here are some key FPI data takeaways.
TRIGGERS FOR FPI FLOWS IN COMING WEEKS?
While the immediate focus of the FPIs would be on the full budget, the other big data point of interest would be the current account deficit (CAD) for FY24, to be announced towards the end of June 2024. Fow now, the focus would largely be on how the Modi 3.0 government goes about its job. As long as the full budget continues to focus on growth, reforms, capital investments and fiscal prudence; the FPIs should have no reasons to complain.
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