Weekly Musings – FPI flows for week ended March 15, 2024

18 Mar 2024 , 07:30 AM

HAPPY DAYS ARE HERE AGAIN FOR FPI FLOWS

It may still be too early to celebrate, but it look like happy days are here again for foreign portfolio investor (FPI) flows into Indian equities. FPIs were net buyers in the previous 3 weeks and had already infused $2.07 Billion into Indian equities. But, the latest week saw a record $3.49 Billion being infused as FPIs bought heavily on two out of the five trading days in the week. In a sense, what changed the sentiments was the decision by Moody’s to upgrade the India GDP growth target to 8%  for FY24. In addition, inflation stayed under control for February and that also helped FPI sentiments.

The surge in FPI flows into equities was already there in the previous weeks, but the latest week to March 15, 2024 was literally decisive. In the latest week to March 15, 2024, the FPIs were net buyers in equities to the tune of $3,488 Million. This comes on top of sustained FPI buying into Indian equities at $919 Million, $743 Million, and $404 Million in the 3 weeks prior to that. In short, FPIs infused $5.55 Billion into Indian equities in the last 4 weeks. Whatever be the specific trigger, it looks like happy days are here again for the FPIs.

MOODY’S UPGRADE TO FY24 GDP PROVIDED THE TRIGGER

It is not often that you get to see one of the world’s largest rating agency more optimistic about growth in an economy than the government and the central bank. But that is exactly what happened in the latest week. Moody’s upped its FY24 GDP growth guidance for India to 8%. That was almost obviously after the latest GDP numbers for the third quarter had reported above 8% growth in real GDP for the first 3 quarters of FY24. It was only obvious that the momentum should help the Indian economy to sustain full year growth of 8%.

What is actually gratifying is that the Moody’s GDP growth estimate for India is a full 40 bps above the MOSPI estimates and a full 100 bps above the RBI estimates. Of course, it is expected that the RBI would also hike its GDP growth estimates for FY25 in the April MPC meeting, but we have to wait for that. What the Moody’s growth guidance for the Indian economy has done is to ensure that the Goldilocks continues to play out in India. After all, above average GDP growth and below average inflation is rather mouth-watering combo.

MACRO FPI FLOW PICTURE UP TO MARCH 15, 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)	35,665.42	5,044.65	40,710.07	9,760.75	50.470.82
Total for 2024 (₹ Crore)	3,606.81	12,898.59	16,505.40	59,188.91	75,694.31
For 2024 ($ Million)	447.74	1,555.41	2,003.15	7,132.24	9,135.39
# – Recent Data is up to March 15, 2024

Data Source: NSDL (Negative figures in brackets)

As of March 15, 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 $9,135.39 Million. However, what is different this week is that there is net inflows in equity and debt, unlike the previous week. For 2024 till date, FPIs net bought equities worth $2,003.15 Million and were net buyers in debt to the tune of $7,132.24 Million. Now, FPIs are net buyers in equities too (in the primary and the secondary markets) and have more than offset the massive selling that FPIs witnessed in January 2024.

There are 2 things that we can infer from the data. Firstly, FPIs had done a good deal of shifting back to equity from debt in the current week with the bond inclusion euphoria waning.  Secondly, the last 4 week of data show that FPIs have infused $5.55 Billion into Indian equities on a net basis and that is a good sign. Now, FPIs are net buyers across primary markets, secondary markets, and debt markets in calendar 2024 till date.

FPI SENTIMENTS – THE WEEK THAT WAS

For the latest week to March 15, 2024, FPI equity market inflows picked up further momentum to $3,488 Million. This marks the fourth successive week of positive FPI flows into equities. These 6 key data points influenced FPI flows in the week to March 15, 2024.

• Moody’s upgrade was the big story for the week. Moody’s upped India’s GDP growth estimate for FY24 to 8%. More brokers and agencies are likely to follow suit. Fitch has also raised the FY25 GDP growth to 7% now, a full 50 bps higher than the previous estimate put out. This upgrade triggered a surge of FPI flows into Indian markets as the estimate was comfortably above the MOSPI estimates and the RBI estimates.
• Consumer inflation in India for February 2024 came in virtually flat at 5.09%, compared to 5.10% in January. While the good news was that core inflation was sharply lower, the food inflation continues to be sticky. With pressure on vegetable and high protein items, it would be interesting to see how the government tackles inflation in the coming weeks. More so, considering that India is just about two months away from general elections.
• Index of Industrial Production (IIP) for January 2024 came in lower at 3.80%. However, this is more because the first revision of December 2023 data led to the IIP growth being upped by 41 bps. That raises the chances of IIP being upgraded in the coming month also when the next data point on IIP is announced by MOSPI. IIP is normally announced with a time lag of 1 month. To add to the IIP story, the WPI inflation also tapered to 0.20%, hinting that producer costs and producer prices are now at a stable level.
• US consumer inflation for February 2024 came in 10 bps higher 3.20%. One must keep in mind that January inflation had been lower at 3.10% but was 20 bps above the January estimate of 2.90%. That means, the current February consumer inflation is a full 30 bps above the January estimate. Most economists were projecting flat inflation, so this is a negative surprise. This also means that the Fed may not consider rate cuts till the second half of 2024, something that was already reflected in the CME Fedwatch. Most of the pressure on US inflation came from oil prices.
• India trade data for February 2024 came in almost flat along expected lines. The merchandise trade deficit for February was marginally higher at $18.25 Billion, but this was the third month in a row that the merchandise trade deficit has stayed under $20 Billion. The good news is that the Red Sea crisis has hit the exports, as is evident from the fall in exports over last year; but even imports are down, so the net impact is negligible. However, the big news is on the growing services surplus. According to latest DGFT estimates, the overall deficit for February 2024 was less than $2 Billion as the services surplus almost entirely wiped out the merchandise trade deficit. Also, the cumulative overall deficit at the end of 11 months stands at $72 Billion, which promises to keep the current account deficit (CAD) at under 1.5% of GDP for FY24.
• Finally, SEBI has approved the launch of T+0 settlements on a sample basis for a small set of stocks on a voluntary basis. The idea is to gradually move towards instant settlement by March 2025 by quickly learning along the way. On thing is certain; that this move would make markets more efficient, churn funds faster and reduce the risk of investors in the market to a great extent. All these would add to the attractiveness of the Indian markets and add to the flows.

In the last one week, the frontline indices cracked more than 2%, despite FPIs being aggressive buyers in Indian equities. That reason for the sharp fall in the markets was the repeated warnings by regulators about market froth. In fact, the sell-off was much more aggressive on the mid-caps and the small caps; as compared to large caps.

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
19-Feb-24	0.00	0.00	0.00	0.00
20-Feb-24	172.68	172.68	20.79	20.79
21-Feb-24	2,973.50	3,146.18	358.39	379.18
22-Feb-24	393.71	3,539.89	47.50	426.68
23-Feb-24	-188.04	3,351.85	-22.67	404.01
26-Feb-24	1,551.85	4,903.70	187.23	591.24
27-Feb-24	-256.36	4,647.34	-30.93	560.31
28-Feb-24	2,055.97	6,703.31	248.03	808.34
29-Feb-24	-1,381.74	5,321.57	-167.49	640.85
01-Mar-24	4,201.31	9,522.88	506.64	1,147.49
04-Mar-24	2,171.14	11,694.02	261.99	1,409.48
05-Mar-24	-12.03	11,681.99	-1.45	1,408.03
06-Mar-24	-221.35	11,460.64	-26.70	1,381.33
07-Mar-24	5,684.37	17,145.01	685.63	2,066.96
08-Mar-24	0.00	17,145.01	0.00	2,066.96
11-Mar-24	10,588.61	27,733.62	1,279.15	3,346.11
12-Mar-24	3,945.51	31,679.13	477.22	3,823.33
13-Mar-24	-115.60	31,563.53	-13.97	3,809.36
14-Mar-24	14,582.35	46,145.88	1,758.97	5,568.33
15-Mar-24	-114.24	46,031.64	-13.79	5,554.54

Data Source: NSDL

The week to March 15, 2024 saw FPI inflows of $3,488 Million, the fourth 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 $919 Million, net inflows of $743 Million, net inflows of $404 Million, net outflows of $84 Million, and net outflows of $618 Million. The latest week to March 15, 2024 saw net FPI inflows into equities to the tune of $3,488 Million, which was a rather encouraging trend. The markets may be down, but the FPIs have infused $5.55 Billion into Indian equities in last 4 weeks.
• If you look at the last 4 rolling weeks on a cumulative basis, total net FPI inflows into equities have been decisively positive at ₹46,032 Crore or $5,555 Million. The rolling 4-week flows had turned into positive territory about a couple of weeks back, after being in the negative for more than 9 weeks in a row. However, the accretion in the FPI flows in the latest week has been truly formidable.

One clear trend emerging from the FPI flow story is the perceptible shift back from debt to equity; a departure from the trend since the start of 2024. That is logical asset reallocation since the preparatory trades ahead of the inclusion of Indian debt into the JPM index and the Bloomberg index is now almost done. The data for the last 4 weeks suggests that confidence in equities is coming back for FPIs and the Moody’s upgrade of Indian GDP may be the latest trigger for FPIs to flock back into Indian equities.

TRIGGERS FOR FPI FLOWS IN COMING WEEKS?

There will be 3 key triggers for FPI flows in the coming weeks.

• The coming week will see the US monetary policy announced on March 20, 2024. Now, rate cuts are already ruled out in March and the CME Fedwatch is also discount any rate cut hopes in the first half of 2024. However, markets will be watching for the wording of the Fed statement on rates trajectory.
• Oil prices will be in focus in the coming week after Brent crude crossed $85/bbl in the previous week. Even the IEA has underlined that the demand for oil will be above supply. Traders are already raising bets of Brent crude touching $90/bbl in March.
• The first pre-election polls have come in and that is hinting at status quo. The FPIs will be waiting for more such views on the political climate ahead of elections. The FPI priority, of course, would be that the reforms process continues in India unperturbed, irrespective of the political equations.

Clearly, the FPIs are getting increasingly comfortable with Indian equities, despite the election day uncertainty; but stock markets are still uncertain. It remains to be seen how FPI flows sustain.