Weekly Musings – FPI flows for week ended June 16, 2023

19 Jun 2023 , 07:35 AM

That is not bad considering that May 2023 was the first month of genuine bounce in FPI flows. In fact, FPI flows into equities in the week to 16-Jun was more than double the flows in the week prior to that. Even debt is seeing flows in June, which is not surprising considering that the RBI policy has almost called a top on rates and the Fed has also decided to pause, albeit temporarily. RBI monetary policy announced on June 08, 2023 was favourable in that it held rates, but then it also gave enough warnings that inflation could spike in coming months.

The week was exciting for the markets as several favourable announcements were made. After the RBI decided to hold rates for the second policy in a row, Fed paused on rates in this week. In the May Fed minutes, it had already hinted at a pause in June. However, if one looks at the guidance of the Fed, the expectation is still of two more rate hikes of 25 bps each in this year followed by rate cuts in 2024. Indian markets are interpreting the actions of the RBI and the US Fed as a hint that global rates are close to the peak, if not at the top. That is a good indication and should enthuse long term commitments to equity and bonds, triggering active and passive FPI flows into emerging markets (EMs). Above all, inflation has also shown a palpable move downwards.

Macro FPI flow picture for the week to 16-Jun 2023

The table captures monthly FPI flows into equity and debt for 2022 and 2023, with the latter being month-wise.

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 #	15,197.08	1,208.67	16,405.75	1,436.26	17,842.01
Total for 2023 #	35,565.83	10,098.15	45,663.98	9,268.71	54,932.69
# – June Data is up to 16-June

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

We now have the FPI flow data up to 16-Jun and the outcome of the frenetic buying in May and June has been that FPIs turned net buyers for calendar year 2023. This is even after offsetting the heavy selling in January 2023 and the relatively subdued selling in February. As of 16-Jun, FPIs have infused nearly $5.54 billion into Indian equities and over $6.66 billion into Indian equities and debt combined in calendar year 2023 so far. What were the triggers (live equity action on markets page).

• There was always the expectation that global hawkishness was peaking, especially after the May Fed minutes. The June Fed policy statement has just affirmed that after the Fed paused on rates. The Fed has quite explicitly suggested that while the rate hikes may not be done and dusted, but that the US was close to the top of the cycle.

   

• In India, it is not just the equity flows, but even the debt flows that are starting to look up. On debt, there are still concerns over taxation and that Indian government did not do enough to get the bonds included in the global indices. However, there is still an economic case for investing in Indian debt. Bond yields in India were always attractive. The only issue was how it compared in real terms and how stable was the rupee. Now, both these questions are being answered in the affirmative. Real rates are well into positive with inflation inching towards 4% mark while the rupee has been stable in the range of 82/$ to 83/$, due to dollar flows and RBI intervention.

   

• The third trigger is about fundamentals. If one looks at the CPI and IIP data for the latest month, then there is something called the macro double blessing. Consumer inflation is tapering and IIP growth, especially in manufacturing is bouncing back. Indian companies are also benefiting from lower input costs, higher gross margins, and better interest coverage ratios. Above all, the high frequency data points like PMI manufacturing, PMI services, GST collections, e-way bills and freight data are all pointing to frenetic growth. 

Year 2023 may have started off on a dull note but by the start of June, FPIs have infused $5.5 billion into equities and another $1.1 billion into debt. It is not like the FOMO (fear of missing out) bounce post the pandemic, but it does look like a long steady FPI story.

Day-wise FPI equity flows for 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
22-May-23	752.67	752.67	91.01	91.01
23-May-23	1,289.58	2,042.25	155.75	246.76
24-May-23	319.38	2,361.63	38.57	285.33
25-May-23	1,497.86	3,859.49	181.07	466.40
26-May-23	2,511.68	6,371.17	303.53	769.93
29-May-23	1,789.66	8,160.83	216.35	986.28
30-May-23	2,290.42	10,451.25	277.46	1,263.74
31-May-23	2,441.34	12,892.59	295.09	1,558.83
01-Jun-23	3,837.49	16,730.08	464.15	2,022.98
02-Jun-23	2,651.98	19,382.06	321.62	2,344.60
05-Jun-23	643.15	20,025.21	78.13	2,422.73
06-Jun-23	-512.86	19,512.35	-62.11	2,360.62
07-Jun-23	1,111.41	20,623.76	134.48	2,495.10
08-Jun-23	1,443.99	22,067.75	174.96	2,670.06
09-Jun-23	612.92	22,680.67	74.22	2,744.28
12-Jun-23	-133.06	22,547.61	-16.15	2,728.13
13-Jun-23	-594.43	21,953.18	-72.09	2,656.04
14-Jun-23	2,200.33	24,153.51	267.06	2,923.10
15-Jun-23	1,862.82	26,016.33	226.31	3,149.41
16-Jun-23	3,282.01	29,298.34	399.28	3,548.69

Data Source: NSDL

Based on the 4 weeks of rolling FPI flows into equities, here are some interesting inferences.

• In the last 4 rolling weeks, the FPI infusion into Indian equities has been $770 million, $1,575 million, $400 million, and $804 million respectively. Despite two days of FPI selling in this week, this the second best week in terms of flows in last 4 rolling weeks.

   

• For the week to 16-Jun, the FPI net inflows into equities stood at Rs6,618 crore or $804 million. This is nearly double the flows in the previsions week ending 09-Jun and this comes only due to a sharp recovery in flows in the last 3 days of the week.

   

• If you look at the last 4 rolling weeks on a cumulative basis, total FPI flows into Indian equities were Rs29,298 crore or $3.55 billion. For the FPIs, it is relative valuations vis-à-vis other EMs that would eventually decide on the flows.

In the last 4 weeks, FPIs have been consistently on the buy side of Indian equities, except for a few days. Clearly, the flows in May and June have been so encouraging that FPIs are now net buyers in debt and equity for the calendar 2023.

Crystal gazing at FPI flows in June 2023 and beyond

How do we see FPI flows into Indian equities for June 2023 and beyond? Investors must get ready to see a lot more of action on the debt flow front. Equity flows could turn a bit ambivalent considering that the markets have rallied sharply and that could have impacted the margin of safety. We also need to look at flows in perspective. While FPI flows are positive for 2023 till date, they have to traverse a long distance to compensate for the outflows of $34 billion between October 2021 and June 2022. After all, the FPI AUC (assets under custody) is still more than 10% below the October 2021 peak levels.

Broadly, 3 factors could trigger FPI flows in June 2023 and the rest of the year. Firstly, a lot will depend on how the other central banks react to the Fed pause. US Fed has held rates, but others like the BOE and ECB also need to join in. Secondly, recession in the US is still a potent reality. That is likely to make FPIs risk averse and any signs of recession will trigger risk-off investing by FPIs. Lastly, monsoons and the Kharif output will be closely watched. After all, its implications for agricultural growth and food prices cannot be denied. Structurally, FPIs appear to be long on the India story.