Weekly Musings – FPI flows for week ended March 08, 2024

10 Mar 2024 , 07:34 AM

FPI INVESTMENTS IN INDIA ARE GROWING IN CONFIDENCE

To be fair, FPI flows may still be a trickle, compared to the sharp sell-off we saw in January. But, the sentiments appear to have changed in the last 3 weeks. The weekly data showed FPIs as net buyers in equities for the third week in a row, although debt continues to dominate the India story in year 2024 so far. Of course, if you look at the overall figure of 2024, it is still the IPO market that has brough in FPI money, while they have been sellers in the secondary markets.

However, the shift is evident in the weekly numbers of FPI equity flows. In the current week to March 08, 2024, the FPIs were net buyers in equities to the tune of $919 Million. In the previous two weeks, FPIs were net buyers to the tune of $743 Million and $404 Million. Effectively, FPIs have been net buyers to the tune of $2.01 Billion into Indian equities in the last three weeks. It may be still be too early to call it a turnaround in FPI flows, but the low VIX is likely to be a positive driver of FPI flows in the future too.

IT IS A CASE OF INDIAN MACROS FALLING IN PLACE

For a long time, it was the Indian macros that the FPIs were worried about. GDP growth continued to be erratic, inflation was unpredictable and fiscal deficit continued to be too high for comfort. All that appears to have changed now. The GDP growth at 8.4% for Q3-FY24 has raised hopes that FY24 GDP growth could also be closer to 8%, although the MOSPI has still conservatively pegged it at 7.6%. The other aspect is inflation. In the last one year, the RBI has held the repo rates constant, but the lag effect of the rate hikes is still helping. Despite the cyclical food shocks, the CPI inflation is just 110 bps away from the 4% target. With the weightage of the food basket being reduced by 500 bps (and rightly so) from 46% to 41%, the consumer inflation is likely to come down further. The third positive aspect is the fiscal deficit. For FY24, the fiscal deficit has been further cut to 5.8% and to 5.1% for FY25. That indicates that the FY26 target could be lower than 4.5%. India has managed to unwind the pandemic era fiscal deficit excesses in a rather smooth manner. This creates a perfect Goldilocks situation for the Indian economy.

MACRO FPI FLOW PICTURE UP TO MARCH 08, 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)	10,799.17	1,024.27	11,823.44	3,735.34	15,558.78
Total for 2024 (₹ Crore)	(21,259.44)	8,878.21	(12,381.23)	53,163.50	40,782.27
For 2024 ($ Million)	(2,554.24)	1,069.81	(1,484.43)	6,403.90	4,919.47
# – Recent Data is up to March 08, 2024

Data Source: NSDL (Negative figures in brackets)

As of March 08, 2024, the FPIs consolidated their position as net buyers in the year 2024 across equity and debt combined. For calendar 2024 overall, the FPIs were net buyers to the tune of $4,919.47 Million. However, that is more because the debt inflows have more than offset equity outflows. For 2024 till date, FPIs net sold equities worth $1,484.43 Million but were net buyers in debt to the tune of $6,403.90 Million. Even in the equity story, FPIs have been net sellers in secondary markets, but IPO inflows have mitigated the situation to some extent. However, there are 2 things that we can infer from the data. Firstly, FPIs shifting between equity and debt is a signal that they are still bullish on the idea of investing in India, and are just allocating more funds to debt.  Secondly, the last 3 months of data show that FPIs have infused $2.01 Billion into Indian equities on a net basis and that consistency is a good sign. However, it may still be early to say that FPI flows have turned around decisively.

FPI SENTIMENTS – THE WEEK THAT WAS

For the latest week to March 08, 2024, FPI equity market inflows picked up further momentum to $919 Million. This marks the third successive week of positive FPI flows into equities. More importantly, debt flows continued to be robust leaving FPIs net buyers overall in February and for calendar 2024. Here are the 6 key data points that influenced FPI action in the week to March 08, 2024.

• The Fed testimony by Jerome Powell before the Senate Banking Committee went along as expected. However, Powell continued to steadfastly hold on to the view that rate cuts would only be considered if the inflation showed clear signals of moving towards 2%. However, Powell did hint that there would be rate cuts in 2024, although the quantum and time table was not disclosed. At the same time, there is also a counterview building up amongst some sections of the fund managers that with the US growth and jobs data so robust, the Fed may not have any incentive to cut rates; but may hike rates next year.
• It was a week in which gold surprisingly rallied very sharply. In fact, gold got very close to the $2,200/oz mark and is already trading at all-time highs. The rally was driven by the geopolitical uncertainty to some extent, but also by hints that the Fed may consider rate cuts this year. Lower rates reduce the opportunity cost of holding gold and that has been positive for gold prices. Also, the dollar index weakened during the year, which has also provided a major boost to the prices of gold. It was surprisingly, the best performing asset class during the week.
• The AMFI data for February 2024 showed sold flows into equity fund. The flows into active equity funds touched a high of ₹26,866 Crore, which is the highest single month flow in the last 23 months. In addition, SIP flows in February 2024 also scaled a record high of ₹18,187 Crore while the NFO flows at over ₹9,300 Crore was largely driven by sectoral and thematic funds. After a long gap, even passive funds and ETFs saw a bounce in flows during the month. The scenario was perfect for a revival in FPI sentiments.
• The wee witnessed a major sell-off in NBFC stocks as most investors preferred to shift from NBFCs to the safety of banks. Several large NBFCs faced regulatory action during the week, although they were of a minor nature. NBFCs as a whole saw some souring of sentiments as these stocks came under selling pressure. However, market experts are of the view that such blips could, at best, be temporary.
• A recent research report in the market by Spark Capital has suggested that Tata Sons, the holding company of the Tata group, may be looking at an IPO sometime in the next couple of years. The report also had some estimates of the valuation of Tata Sons and the trickle down effect on other Tata Companies. According to the report, Tata Sons could get a valuation of around $96 Billion, which would position the company among the top-5 Indian companies in terms of market cap. Tata Sons is the largest shareholder in TCS. Tata Sons also incubates some of the new age businesses of the group like semiconductors, EV batteries etc. This move could also benefit companies like Tata Chemicals and Tata Investments with substantial holdings in Tata Sons.
• Finally, as part of the group restructuring, Tata Motors will separate its PV and CV businesses into separate listed entities. The company expects this move to result in better allocation of capital and also better valuations for the new age businesses within the group. The overall impact is likely to be positive and could pave the way for a full-fledged restructuring within the Tata group.

For the FPIs, there have been several risk mitigants in the last few weeks. The election uncertainty is still there, but one positive signal is that the VIX (volatility index) has come down sharply to around 13.6 levels from above 16.2 levels. This is a trend that that was not visible in 2019; clearly indicating that investor confidence is much higher this time around.

DAILY FPI EQUITY FLOWS FOR LAST 4 ROLLING WEEKS

Here we look at 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 flow
12-Feb-24	330.32	330.32	39.80	39.80
13-Feb-24	220.37	550.69	26.56	66.36
14-Feb-24	233.61	784.30	28.14	94.50
15-Feb-24	-2,628.26	-1,843.96	-316.33	-221.83
16-Feb-24	1,143.05	-700.91	137.70	-84.13
19-Feb-24	0.00	-700.91	0.00	-84.13
20-Feb-24	172.68	-528.23	20.79	-63.34
21-Feb-24	2,973.50	2,445.27	358.39	295.05
22-Feb-24	393.71	2,838.98	47.50	342.55
23-Feb-24	-188.04	2,650.94	-22.67	319.88
26-Feb-24	1,551.85	4,202.79	187.23	507.11
27-Feb-24	-256.36	3,946.43	-30.93	476.18
28-Feb-24	2,055.97	6,002.40	248.03	724.21
29-Feb-24	-1,381.74	4,620.66	-167.49	556.72
01-Mar-24	4,201.31	8,821.97	506.64	1,063.36
04-Mar-24	2,171.14	10,993.11	261.99	1,325.35
05-Mar-24	-12.03	10,981.08	-1.45	1,323.90
06-Mar-24	-221.35	10,759.73	-26.70	1,297.20
07-Mar-24	5,684.37	16,444.10	685.63	1,982.83
08-Mar-24	0.00	16,444.10	0.00	1,982.83

Data Source: NSDL

The week to March 08, 2024 saw FPI inflows of $919 Million, the third successive week of meaningful positive flows into Indian equities. Here is a quick run-down.

• In last previous 5 rolling weeks, FPIs had seen net inflows of $743 Million, net inflows of $404 Million, net outflows of $84 Million, net outflows of $618 Million, and net inflows of $126 Million. The latest week to March 08, 2024 saw net FPI inflows into equities to the tune of $919 Million, which was a rather encouraging trend, especially if you consider that it has been magnified by the sharp fall in VIX from 16.2 to 13.6 levels.
• If you look at the last 4 rolling weeks on a cumulative basis, total net FPI inflows into equities have been decisively positive at ₹16,444 Crore or $1,983 Million. The rolling 4-week flows had turned into positive territory last week, after being in the negative for more than 9 weeks in a row. That is a good signal.

One clear trend emerging from the FPI flow story is the perceptible shift from equity towards debt. That is logical asset allocation ahead of Indian debt inclusion in JPM index. However, the data for the last 3 weeks suggests that confidence in equities may also be coming back among the FPIs.

WHAT WILL DRIVE FPI FLOWS IN COMING WEEKS?

There will be 3 key drivers of FPI flows in the coming weeks.

• India will be announcing the CPI and WPI inflation data this week. While the CPI inflation is expected to taper further to around the 5.02% levels (as per Bloomberg estimates), the WPI inflation is also likely to moderate, albeit remain in positive zone. Lower inflation will be a positive boost for FPI flows.
• The week will also see the IIP data for January and the trade data for February. IIP is expected to bounce to above 4% on the back of robust manufacturing data. The trade deficit at an overall level (goods plus services) may still remain in single digits. This assumes significance ahead of the Q3 CAD announcement later this month..
• The US BLS is likely to announced CPI inflation for February 2024 on March 11, 2024 and it is expected to be flat at 3.1%. However, any positive surprises on the downside may be a direct boost to FPI flows into emerging markets, especially into India.

Apparently, the proposal for inclusion of Indian debt into the JP Morgan Bond indices and the Bloomberg Bond indices is triggering a lot of FPI flows into bonds. However, the data of the last 3 weeks indicates that FPIs may be getting comfortable with Indian equities too, despite the election day uncertainty. That is good news.