Weekly Musings – FPI flows for week ended June 30, 2023

1 Jul 2023 , 08:15 PM

If the month of May 2023 saw FPI inflows of $5.30 billion, then June 2023 has witnessed FPI inflows of $5.74 billion. In short, a whopping $11 billion of FPI flows have come into Indian equities just in the months of May and June 2023. In the week to June 30, 2023, FPI inflows were $2.01 billion of which $1.81 billion came in on the last day of June alone. The monthly flows for June, therefore, stood at an imposing $5.74 billion. In rupee terms, the FPI flows in June stood at Rs45,737 crore. The week saw some positive action due to a slew of block deals, but there was also a lot of FPI buying betting on the likely changes in the Nifty composition post the merger of HDFC and HDFC Bank. The merger is effective from July 01, 2023.

If the big news in the previous week was about the RBI MPC minutes, the FPI flows got a leg up in this week from the better than expected current account deficit (CAD) number. In the fourth quarter of FY23 ended March 2023, the current account deficit narrowed to $1.3 billion. That is just 0.2% of the GDP. For the full fiscal year FY23, the CAD came in at $67 billion or 2% of GDP. Now, one can argue that this is higher than the 1.2% reported in FY22, but the recovery is more important. Around October 2022, the full year CAD was expected at closer to 3.5% or 4% of GDP. Compared to that, 2% CAD looks like a blessing. In FY24, the CAD is expected to narrow to under 1%. What most FPIs were impressed was that the merchandise trade deficit had been controlled while the services surplus had been boosted. Towards the end of the week, the US announced the third estimate of Q1GDP at 2%. What enthused the markets was the fact that it marked a 70 bps upgrade over the second estimate and still shows consumption robust. These news flows helped risk-on flows.

Macro FPI flow picture for the week to June 30, 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 #	45,736.71	1,411.63	47,148.34	9,109.36	56,257.70
Total for 2023 #	66,105.46	10,301.11	76,406.57	16,941.81	93,348.38
# – June Data is for full month

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

We now have the FPI flow data for the whole of June 2023 and the outcome of the frenetic buying in May and June is evident. FPIs infused $11 billion into equities in the last 2 months, effectively become net buyers in equities in the calendar year 2023. This is despite starting off with two months of aggressive selling by the FPIs. Also, FPIs heavily bought into debt in the last week of June, turning aggressive buyers in bonds too. As of June 30, 2023, FPIs have infused $9.29 billion into Indian equities and over $11.36 billion into Indian equities and debt combined in calendar year 2023. One trend in the latest week was that the FPIs turned heavy net buyers in debt. What were the triggers? (live equity action on markets page).

• There was the big boost to FPI flows that came from the better than expected current account deficit (CAD) situation. At 0.2% of GDP for the fourth quarter ended March 2023 and at just 2% of GDP for FY23, the CAD has come as a sigh of relief. High CAD has the potential to weaken the rupee, depress FPI flows and raise queries from rating agencies. The latest week saw a reverse of that situation, which was the big positive for FPI flows.

   

• FPIs are now betting that global rates may be very close to the top, if not at the very top. With Indian real rates attractive, inflation in control and the rupee stable, the FPIs have reasons to serious look at Indian debt paper. That is what they did in the latest week. Real rate lock-in is more visible in India as inflation is much closer to the RBI target rate.

   

• Of course, one cannot miss the aspect of the Goldilocks economy. Inflation has come down lower than expected and IIP is consistently better than expected. Even the latest core sector numbers evince that. High frequency data points like PMI manufacturing, PMI services, GST collections, e-way bills and freight data are also positive.

   

• Finally, there was the big event of HDFC Bank / HDFC Ltd merger that led to a lot of buying last week in possible index inclusions. More importantly, it is a signal that Indian companies are now looking to become global scale. Remember, post the merger, HDFC Bank will be the fourth most valuable bank in the world by market cap.

Year 2023 started off on a dull note in terms of FPI flows. However, things reversed from March and by the close of June 2023, FPIs have been net buyers of $9.29 billion into equities and about $2.07 billion in debt. This was after offsetting the selling in January and February.

Daily 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
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
26-Jun-23	199.33	24,373.69	24.29	2,965.61
27-Jun-23	-349.33	24,024.36	-42.62	2,922.99
28-Jun-23	1,830.64	25,855.00	223.35	3,146.34
29-Jun-23	0.00	25,855.00	0.00	3,146.34
30-Jun-23	14,803.87	40,658.87	1,805.08	4,951.42

Data Source: NSDL

This was a truncated week with one trading holiday and 90% of the weekly FPI flows of $2.01 billion coming on the last day of the month. 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 $400 million, $804 million, and $1,737 million respectively. The latest week has been one of the best weeks with $2,010 million of flows into equities.

   

• For the week to June 30, 2023, the FPI net inflows into equities stood at Rs16,485 crore or $2.01 billion, supported by big block deals. This is better than any of the previous 10 weeks in succession.

   

• If you look at the last 4 rolling weeks on a cumulative basis, total FPI flows into Indian equities were Rs40,659 crore or $4.95 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 decisively net buyers in debt and equity for calendar 2023.

What will the FPI story be from here on?

One factor that will still play on the minds of FPIs is the persistent global hawkishness and that is not changing easily. At least, not if you go by the recent Congressional testimony of Jerome Powell. That is not only an overhang on FPI flows, but also keeps the risk of global recession on the radar. However, India also has domestic issues to worry about. Monsoons have finally arrived, but the delay must have surely impacted sowing patterns and we could see the impact on the output of cereals and food inflation. That also has larger implications for rural demand and for sectors like FMCG, two-wheelers, tractors, and consumer goods. 

But the big story that FPIs would be watch out for is the impact of global spending on Indian companies. That has direct implications for the merchandise trade deficit and also for the services surplus. The services exports in the last few months have slowed due to weak demand for IT services and pricing pressures. This can be the real factor that will keep FPI flows on tenterhooks, amidst all the euphoria!