Weekly Musings – FPI flows for week ended June 23, 2023

26 Jun 2023 , 10:13 AM

There has been tremendous accretion of $1.74 billion in FPI inflows into Indian equity during the latest week to June 23, 2023, taking the total monthly flows for June till date to $3.73 billion. In rupee terms, the FPI flows in June so far have been Rs30,664 crore. With one more of trading week to go in June, there is a strong possibility that the May 2023 FPI flow number could be bettered. The FPI flows in the latest week were driven by some major block deals in stocks like Shriram Finance, where Piramal Enterprises sold its entire stake. There were also deals where Aberdeen exited its entire stake in HDFC AMC during the latest week.

The big news on the flows front was the announcement of the minutes of the RBI Monetary Policy Committee (MPC). The MPC announces the minutes exactly 14 days after the bi-monthly meet and the latest minutes showed sharp dichotomies among the members over the future trajectory of interest rates. Members of the MPC were unanimous about the need to continue the pause on rates in June 2023 also. However, the differences pertained to the future trajectory of rates. The three RBI internal members were strongly of the view that more rate hikes were essential to fully control inflation. However, the three external members of the RBI MPC were cautioning the committee that further rate hikes could hit consumption and also output. How this dichotomies are resolved; would determine the trajectory of repo rates in the coming MPC policy meetings.

Macro FPI flow picture for the week to June 23, 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 #	29,391.29	1,272.54	30,663.83	-4,113.69	26,550.14
Total for 2023 #	49,760.04	10,162.02	59,922.06	3,718.76	63,640.82
# – June Data is up to 23-June

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

We now have the FPI flow data up to June 23, 2023 and the outcome of the frenetic buying in May and June has been that FPIs are now decisively net buyers for the calendar year 2023. This is even after offsetting the heavy selling in January 2023 and the relatively subdued selling in February. As of June 23, 2023, FPIs have infused nearly $7.35 billion into Indian equities and over $7.81 billion into Indian equities and debt combined in calendar year 2023 so far. One trend in the latest week was that the FPIs were heavy net sellers in debt. What were the triggers? (live equity action on markets page).

• There was always the expectation that global hawkishness was peaking, especially after the Fed paused on rates in June. However, the late decision by the Bank of England to persist with hawkishness and hike rates by 50 bps indicate that inflation is far from over globally. That led to some selling in debt in India during the week.

   

• In India, while equity flows looked smart, the debt flows turned negative in the week. The decision by the Bank of England to raise rates by 50 bps was a concern. Also, there are fundamental concerns on debt like taxation and non-inclusion in the global indices. However, the good news is that bond yields in India are now well in the positive in real terms. Apart from positive real rates, a stable rupee is also likely to be a boost for debt flows into India in the coming weeks.

   

• India is currently in the midst of a Goldilocks economy with inflation coming in lower than expected and IIP being better than expected. Indian companies are gaining from lower input costs, higher gross margins, and better interest coverage ratios. The all-important high frequency data points like PMI manufacturing, PMI services, GST collections, e-way bills and freight data are also positive and should boost FPI flows.

Year 2023 started off on a dull note in terms of FPI flows. However, by the third week of June 2023, FPIs have been net buyers of $7.35 billion into equities and about $450 million in debt. There was selling in bonds in the latest week, but that could be more an exception than the rule.

Day-wise FPI equity flows for the last 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
29-May-23	1,789.66	1,789.66	216.35	216.35
30-May-23	2,290.42	4,080.08	277.46	493.81
31-May-23	2,441.34	6,521.42	295.09	788.90
01-Jun-23	3,837.49	10,358.91	464.15	1,253.05
02-Jun-23	2,651.98	13,010.89	321.62	1,574.67
05-Jun-23	643.15	13,654.04	78.13	1,652.80
06-Jun-23	-512.86	13,141.18	-62.11	1,590.69
07-Jun-23	1,111.41	14,252.59	134.48	1,725.17
08-Jun-23	1,443.99	15,696.58	174.96	1,900.13
09-Jun-23	612.92	16,309.50	74.22	1,974.35
12-Jun-23	-133.06	16,176.44	-16.15	1,958.20
13-Jun-23	-594.43	15,582.01	-72.09	1,886.11
14-Jun-23	2,200.33	17,782.34	267.06	2,153.17
15-Jun-23	1,862.82	19,645.16	226.31	2,379.48
16-Jun-23	3,282.01	22,927.17	399.28	2,778.76
19-Jun-23	181.15	23,108.32	22.12	2,800.88
20-Jun-23	1,756.21	24,864.53	214.26	3,015.14
21-Jun-23	5,866.41	30,730.94	714.40	3,729.54
22-Jun-23	5,508.03	36,238.97	670.94	4,400.48
23-Jun-23	946.28	37,185.25	115.51	4,515.99

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 $1,575 million, $400 million, $804 million, and $1,737 million respectively. The latest week has been one of the best weeks in terms of FPI flows in the last four weeks.

   

• For the week to June 23, 2023, the FPI net inflows into equities stood at Rs14,258 crore or $1.74 billion, supported by big block deals. This is more than double the flows of the previsions week.

   

• If you look at the last 4 rolling weeks on a cumulative basis, total FPI flows into Indian equities were Rs37,185 crore or $4.52 billion. FPI sentiments are also buoyed by relative valuations versus other EMs.

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

How would the FPI flows get impacted in the coming weeks

How do we see FPI flows into Indian equities for June 2023 and beyond? In the previous week, we had spoken about positive traction on debt flows but the Bank of England raising rates by 50 bps dampened the FPI enthusiasm. However, we do still believe that equity flows could be ambivalent in the coming weeks. If you take a slightly longer term view, the FPI flows have a long way to go before they can make up for the outflows of $34 billion between October 2021 and June 2022. Remember, that the FPI AUC (assets under custody) is still about 10% below the October 2021 peak levels.

Going ahead, 3 factors will be critical in determining the colour and nature of FPI flows into India. Firstly, a lot will depend on how the other central banks react to the Fed pause. Bank of England stayed hawkish, but that could be more because its inflation is driven by the BREXIT triggered supply chain constraints. Secondly, recession in the US cannot still be ruled out. If the probability of US recession increases further, it could make the FPIs risk averse and it could trigger risk-off investing by FPIs. However, the real joker in the pack would be the monsoons. Monsoons are already delayed and that is likely to have a bearing on the Kharif output and also on foodgrain inflation. Above all, it has larger implications for rural demand, which drives a host of sectors like FMCG, two-wheelers, tractors, consumer goods etc. That could be the X-factor!