Weekly Musings – FPI flows for week ended June 21, 2024

24 Jun 2024 , 09:26 AM

TWO WEEKS OF HEAVY FPI INFLOWS

After infusing $1.41 Billion in the previous week, the FPIs infused another $1.83 Billion in the latest week to June 21, 2024. That is a good $3.24 Billion infused into Indian equities in the last two weeks since the Modi 3.0 government took oath of office. It is interesting; how much difference political stability and certainty can make to the sentiments of FPIs. Just about a month ago, FPIs were worried that the government may fall short of the majority mark and need the support of allies to prop them up. The ruling BJP actually fell short of the 272 mark, but managed the transition from a majority government to a coalition centre. Above all, behind the political risks, the larger macroeconomic story was sturdy as a rock.

A lot will depend on how the language of the government appears between now and the full budget. The full budget is likely to be announced only in the last week of July, so it is still some time away. However, it is very unlikely that the government would attempt any drastic changes in the full budget. It would rather allow the macroeconomic story of GDP, low fiscal deficit, and low CAD to play out in the current year and then make a much bigger splash in the Union Budget to be announce in February 2025. That looks more likely as it would give the government enough time to accommodate the aspirations of the allies too. But the message is clear; FPIs are back with a bang. Apparently, concerns over relative valuations are still there, but FPIs would be loath to missing out on a genuine growth story.

MPC MINUTES GIVES A HINT THAT TIDE MAY BE TURNING

The minutes of the Monetary Policy Committee (MPC) published late on Friday, did not say much, apart from the standard concerns over food inflation. Even the RBI governor admitted that the last mile inflation was proving tougher than expected. For instance, the India consumer inflation has been hovering in a small range for the last 3 months in a row. It is still a good 80 bps away from the target of 4%. But, that was not the real story that FPIs would have read into it. What they would have focused on is the dual voice of dissent with two MPC members calling for cut in rates and also a shift in the monetary stance.

For a long time, it was only Jayanth Varma who was playing the devil’s advocate. In the June policy, even Ashima Goyal has called out for a cut in the repo rates by 25 bps and for shifting the stance from “Gradual withdrawal of accommodation” to a “Neutral” stance. Both Varma and Goyal have argued that it would be more in sync with the market reality today. With the market liquidity in a deficit situation, there was no reason to worry about withdrawal of accommodation. Also, with real rates above 2% and the current repo rates still about 135 basis points above the pre-COVID rates, the odds were more in favour of the RBI cutting rates. The FPIs, now, seem to believe that the probability of rate cuts from these levels is much higher than a status quo on rates going ahead.

MACRO FPI FLOW PICTURE UP TO JUNE 21, 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) #	11,056.74	1,113.54	12,170.28	12,914.84	25,085.12
Total for 2024 (₹ Crore)	(45,794.24)	34,600.57	(11,193.67)	84,327.76	73,133.93
For 2024 ($ Million)	(5,467.02)	4,159.99	(1,307.03)	10,151.20	8,844.17
# – Recent Data is up to June 21, 2024

Data Source: NSDL (Negative figures in brackets)

FPIs turned aggressive net buyers in the week to June 21, 2024 at $1.825 Million after being net buyers of $1,405 Million in the previous week. For calendar 2024 so far, FPIs were net buyers to the tune of $8,844.17 Million. For 2024 till date, FPIs net sold equities worth $(1,307.03) Million and were net buyers in debt to the tune of $10,151.20 Million. As of the close of June 21, 2024, the FPIs were still net sellers in secondary market equities worth $(5,467.02) Million, while the buying in IPOs partially compensated for that at $4,159.99 Million.

In the latest week to June 21, 2024, FPIs were again net buyers worth $1.83 Billion after being net buyers worth $1.41 Billion in the week before that. In the 5 weeks prior to that; FPIs were net sellers of $1.77 Billion, 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, some sanity and optimism appears to be returning to FPI sentiments; now that the uncertainty is over and a new government has already taken oath of office. Even the VIX has more than halved in recent weeks, although it is yet to stabilize.

FPI SENTIMENTS – THE WEEK THAT WAS

For the latest week to June 21, 2024, FPIs were net buyers to the tune of $1,825 Million. For 2 weeks in a row, the FPIs have been net buyers in equity; infusing $3.24 Billion in the process. Here is what drove FPI sentiments this week.

• The RBI published the MPC minutes for the June policy late on Friday. The MPC continues to be sceptical about rate cuts at this juncture due to the sticky food inflation and the uncertainty over the monsoon impact. However, there is an underlying trend visible. For example, there is a dichotomy building within the MPC with the RBI representatives in the MPC still batting for status quo while the non-RBI members are keen for a rate cut. It looks like market pressures may eventually push the RBI to cut rates pre-emptively in post the full budget. For now, we have to wait and watch.
• The other big even in the week was about oil prices. Brent Crude spiked above $85/bbl, despite the US inventories rising during the week. That is normally a bearish indicator for oil, but oil players are looking at a much bigger picture. For instance, oil traders are betting that the demand for oil will remain robust and hence even if the OPEC removes its supply cuts by end of the year, the demand would still be enough to keep the oil market in deficit. That led to a sharp spike in the oil prices to above $85/bbl during the week. Interestingly, oil has been going up despite the strong dollar in this week.
• There are some major regulatory changes that is being planned by SEBI and other regulatory bodies to ensure a more transparent and safer market. For instance, SEBI plans to regulate the pre-market price discovery of IPOs that happens on listing day. There are chance of price setting as many large orders that distort price discovery tend to get cancelled subsequently. Then, there is the issue of retail participation in F&O. To discourage retail investors going aggressive on F&O, the SEBI and CBDT may jointly look to tax all F&O income as speculative income rather than business income. It is not clear how that will be implemented as futures and options are classified as securities under the SCRA. The only way is to distinguish between unhedged transactions and back-to-back hedged transactions in the F&O market and treat the former as speculative.
• To give a boost to farmers to enhance their agricultural output of Kharif crops, the government has announced an increase in the minimum support price (MSP) for a range of Kharif crops between 5% and 12%. The idea is that a lucrative MSP will encourage the farmers to keep agricultural output high and that also ensures that the risk of food inflation comes down automatically. In terms of percentage increase, Niger Seeds had the best hike in MSP at 12.5%; while other key Kharif crops like Tur Dal, Sunflower Seeds, Cotton, and Sesame got MPS increases in the range of 7% to 8% in the current year. These rates will apply for the current Kharif season falling under the FY25 period.
• It is said that the proof of the pudding lies in the eating; and if you are looking at the proof of GDP growth, then nothing explains it better than the advance tax numbers. These advance tax numbers show how much individuals and companies are paying as taxes on a quarterly basis. For the first quarter of FY25; upto June 15, 202; the advance tax receipts were up 27% compared to the corresponding period of the previous year. By June 15, the tax payers are required to pay 15% of the full year tax and gives a good picture of how much of income / profits are likely to be generated. A growth of 27% in advance tax collections also means that India could end up beating the full year tax and revenue targets in this year also. That is a major boost for growth numbers.
• If investors are wondering if it is time to pick private banks again, there is an affirmative answer from CLSA. According to a recent report by CLSA. Indian banks are enjoying the strongest balance sheets in over 10 years. The ROE is already at the highest level since 2011 and balance sheets are cleaned of non-performing assets. To add to the story, private banks are now available at a P/E of 10X to 15X; while the Nifty itself is at 18X.

With most of the data flows done and dusted, the action will shift to the last week; when big data points are slated to be announced by India and the US. The bottom line is that FPIs are once again feeling optimistic about India, and that is what matters.

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
27-May-24	-937.08	-937.08	-112.74	-112.74
28-May-24	696.16	-240.92	83.79	-28.95
29-May-24	2,134.54	1,893.62	256.66	227.71
30-May-24	-4,311.41	-2,417.79	-517.41	-289.70
31-May-24	-1,122.05	-3,539.84	-134.50	-424.20
03-Jun-24	2,177.66	-1,362.18	261.42	-162.78
04-Jun-24	6,847.12	5,484.94	824.29	661.51
05-Jun-24	-12,243.91	-6,758.97	-1,466.30	-804.79
06-Jun-24	-4,804.39	-11,563.36	-576.14	-1,380.93
07-Jun-24	-6,770.71	-18,334.07	-811.20	-2,192.13
10-Jun-24	5,355.83	-12,978.24	641.99	-1,550.14
11-Jun-24	2,867.87	-10,110.37	343.49	-1,206.65
12-Jun-24	57.02	-10,053.35	6.83	-1,199.82
13-Jun-24	679.33	-9,374.02	81.30	-1,118.52
14-Jun-24	2,770.42	-6,603.60	331.60	-786.92
17-Jun-24	0.00	-6,603.60	0.00	-786.92
18-Jun-24	3,234.51	-3,369.09	387.15	-399.77
19-Jun-24	1,576.35	-1,792.74	188.82	-210.95
20-Jun-24	9,175.54	7,382.80	1,099.85	888.90
21-Jun-24	1,247.64	8,630.44	149.38	1,038.28

Data Source: NSDL

FPIs were again net buyers this week, with the political uncertainty coming to an end and the VIX stabilizing. Here are some key FPI data takeaways.

• In previous 5 rolling weeks, FPIs had seen net inflows of $1,405 Million, net outflows of $1,768 Million, $424 Million, net inflows of $744 Million, and net outflows of $1,336 Million. The latest week to June 21, 2024 saw net FPI inflows of $1,825 Million into equities.
• If you look at the last 4 rolling weeks on a cumulative basis, total net FPI outflows from equities were at ₹8,630 Crore or $1,038 Million. This number has turned positive for equities on rolling basis, after a long gap. FPIs remained net buyers in debt.

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. The focus is on whether the full year CAD for FY24 can be reined in under 1% of GDP. Markets are also watching budget signals from the Modi 3.0 government. The good news is that FPI flows may have finally turned positive for good.