Weekly Musings – FPI flows for week ended March 22, 2024

24 Mar 2024 , 08:50 AM

YEAR END BLUES FOR FPI FLOWS

One of the common tendencies in recent years has been that FPIs tend to cautious towards the end of the fiscal year due to the rampant tax farming that happens in market. Hence some caution was expected. FPIs were net buyers in the previous 4 weeks and had already infused $5.56 Billion into Indian equities in the last 4 weeks. After a record infusion of $3.49 Billion in the previous week, FPIs were net sellers this, albeit to the tune of just $314 Million. The US Fed statement was received warmly by the FPIs as it clearly hinted that 3 rate cuts would happen in the calendar year 2024. The next focus would be current account deficit.

After the deluge of FPI flows into equities in the past 4 weeks, this being the penultimate week of the financial year saw some profit booking by FPIs. The latest week to March 22, 2024 was saw FPIs as net sellers to the tune of $314 Million. In the last 4 weeks, FPIs were net buyers to the tune of $3,488 Million, $919 Million, $743 Million, and $404 Million. Ini comparison, FPIs were net sellers in the latest week to March 22, 2024, after infusing $5.56 Billion in the 4 weeks prior to that. FPIs tend to be wary about taking any big decision towards the end of a fiscal quarter, when tax farming is normally at its peak and causing fairly intense volatility in the markets.

FED STATEMENT GIVES A FILLIP TO FPI SENTIMENTS

The Fed statement was announced on Mar 20, 2024 this week along with the quarterly update of the 5-year projections of key macros. While the Fed held status quo on rates, as expected, what positively surprised the street was the positive assurance from Jerome Powell that the Fed would implement 3 rate cuts in calendar 2024. Of course, there was the safe harbour provision of favourable data, but that was the boldest statement from the Fed in a long time and the market was not willing to ignore that. In addition, the update to the long term projections macros did show that rate cuts in 2025 would be slower than original indicated, but that was not a major concern, since the Fed had committed to commencing rate cuts in the current calendar itself. Also, the quarterly updates assumed sharply higher GDP growth and flat inflation, even as unemployment was pegged at a stable 4.0%.

MACRO FPI FLOW PICTURE UP TO MARCH 22, 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)	32,324.80	5,773.04	38,097.84	13,444.29	51.542.13
Total for 2024 (₹ Crore)	266.19	13,626.98	13,893.17	62,872.42	76,765.62
For 2024 ($ Million)	45.78	1,643.32	1,689.10	7,575.45	9,264.55
# – Recent Data is up to March 22, 2024

Data Source: NSDL (Negative figures in brackets)

As of March 22, 2024, the FPIs consolidated their position as net buyers in the year 2024 across equity and debt combined, although the tempo did slow. For calendar 2024 overall, the FPIs were net buyers to the tune of $9,264.55 Million. However, compared to the last week, the equity inflows are substantially lower due to tapering of secondary market flows. For 2024 till date, FPIs net bought equities worth $1,689.10 Million and were net buyers in debt to the tune of $7,575.45 Million. Since last week, 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 the month of January 2024.

There are 2 things that we can infer from the data. Even as FPI equity flows faltered this week amidst the fiscal year-end volatility, debt flows continued to be robust.  Secondly, the previous 4 week saw FPIs infusing $5.56 Billion into Indian equities on a net basis. In comparison, the net selling of $314 Million in the latest week should hardly be a concern. A clearer picture should emerge from April onwards, since the last week of March, being a truncated week of just 3 trading days, could see some intense volatility.

FPI SENTIMENTS – THE WEEK THAT WAS

For the latest week to March 22, 2024, FPIs were net sellers to the tune of $314 Million. However, this comes in the backdrop of $5.56 Billion of FPI buying in equities in the 4 weeks prior to that. These 6 key data points influenced FPI flows in the week to March 22, 2024.

• The big even in the week was the Fed statement. The Fed maintained status quo on rates, as was largely expected. However, the big positive was that the Fed almost assured the market that there would be 3 rate cuts in the calendar year 2024, even though it could be slightly back-ended. However, the Fed did cut its estimates to just 3 rate cuts in 2025. At the current juncture, that may not be too material for markets, that are more intent on the rate cut program starting off, above all else.
• Along with the Fed statement, the FOMC also updated the macro projections for the next 3 years and into the long term. The Fed has sharply upped its GDP forecast for 2024, while it has been rather steady about its forecast for future years. Going ahead, the Fed does expect the core PCE inflation to pick up. Inflation is likely to be higher for longer, so the rate cuts could, most likely, be delayed and also be back-ended.
• Rupee weakened sharply during the week to an all-time low of ₹83.55/$. This was on the backdrop of a sharp hardening of the US Dollar, as evidenced by the rally in the Dollar Index (DXY). With the EU and UK indicating that rates had peaked, the Pound and Euro weakened against the US Dollar. This spike the dollar index and led to a sharp cut in the Indian rupee also. That was also one of the trigger for FPI outflows in the week.
• With the current account deficit number to be announced by the RBI in the coming week, the week saw economists forecasting a sharply lower current account deficit (CAD) for FY24. The original estimate was of the CAD coming in the range of 1.5% to 2.0% of the GDP. However, with the services surplus nearly offsetting the merchandise trade deficit in the first two months of 2024, economists are pegging the CAD at closer 1.0% to 1.1% of GDP for FY24. That is likely to a big boost for the FPI flows as well as for the rupee value and sovereign view on Indian debt paper..
• The big news in the week was on the technology sector after Accenture lowered its revenue growth guidance for 2024. From a range of 2-5%, Accenture lowered its guidance to a range of 1-2%; something that did not go down too well with the Indian IT stocks. On the last 2 days of the week, the IT stocks cracked sharply led by the heavyweights like TCS, Infosys and HCL Technologies. Overall, the IT index fell -6.16% for the week, causing most of the pressure on the Nifty and the Sensex.
• Apart from the sell-off in the IT stocks, there were two more factors that put pressure on the Nifty. Firstly, Japan exited its negative interest rate regime after a gap of 17 years and that could have implications for the Yen carry trade, which has been quite popular among FPIs. Secondly, the week again saw intense tax farming as most investors preferred to book the losses in their portfolio during the year so that that can claim the tax shield of these losses, against their existing gains. That kept FPI flows in check.

The previous week had seen a sharp fall in indices after a combination of tax farming and repeated SEBI warnings about mid-cap froth undid the market sentiments. This week was a return to normalcy, although FPI flows were still tepid. The big cheer in the week came from the Fed statement giving a tacit assurance of 3 rate cuts in the calendar year 2024.

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
26-Feb-24	1,551.85	1,551.85	187.23	187.23
27-Feb-24	-256.36	1,295.49	-30.93	156.30
28-Feb-24	2,055.97	3,351.46	248.03	404.33
29-Feb-24	-1,381.74	1,969.72	-167.49	236.84
01-Mar-24	4,201.31	6,171.03	506.64	743.48
04-Mar-24	2,171.14	8,342.17	261.99	1,005.47
05-Mar-24	-12.03	8,330.14	-1.45	1,004.02
06-Mar-24	-221.35	8,108.79	-26.70	977.32
07-Mar-24	5,684.37	13,793.16	685.63	1,662.95
08-Mar-24	0.00	13,793.16	0.00	1,662.95
11-Mar-24	10,588.61	24,381.77	1,279.15	2,942.10
12-Mar-24	3,945.51	28,327.28	477.22	3,419.32
13-Mar-24	-115.60	28,211.68	-13.97	3,405.35
14-Mar-24	14,582.35	42,794.03	1,758.97	5,164.32
15-Mar-24	-114.24	42,679.79	-13.79	5,150.53
18-Mar-24	773.09	43,452.88	93.26	5,243.79
19-Mar-24	-1,166.67	42,286.21	-140.71	5,103.08
20-Mar-24	1,351.07	43,637.28	162.90	5,265.98
21-Mar-24	-2,242.76	41,394.52	-269.88	4,996.10
22-Mar-24	-1,326.96	40,067.56	-159.62	4,836.48

Data Source: NSDL

The week to March 22, 2024 saw FPI outflows of $314 Million, after four successive weeks 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 $3,488 Million, net inflows of $919 Million, net inflows of $743 Million, net inflows of $404 Million, and net outflows of $84 Million. The latest week to March 22, 2024 saw net FPI outflows from equities to the tune of $314 Million, which was actual quite marginal, compared to the FPI infusion of $5.56 Billion into Indian equities in 4 weeks prior to that.
• If you look at the last 4 rolling weeks on a cumulative basis, total net FPI inflows into equities have been decisively positive at ₹40,068 Crore or $4,836 Million. The rolling 4-week flows had turned into positive territory about 3 weeks back, after being in the negative for more than 9 weeks in a row. However, in the current week, the FPI equity outflows were more than compensated by the debt market inflows from FPIs.

One clear trend from FPI flow story is the last 4 weeks is the shift back from debt to equity; a departure from the trend since the start of 2024. The current week may be an aberration, at best. The big debt story is still on with a lot of preparatory buying ahead of the Indian government bonds being included in the global bond indices of JP Morgan and Bloomberg indices. The Fed statement this week, assuring of 3 rate cuts in 2024, has come like the proverbial manna from heaven for the FPIs.

TRIGGERS FOR FPI FLOWS IN COMING WEEKS?

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

• The coming week will be the last week of the financial year 2024 and the last F&O expiry for FY24 is also slated for this week. In addition, there are 2 trading holidays in the coming week, so most of the last week volatility will be concentrated in 3 days only.
• The current account deficit for Q3 and the update for FY24 will be the big data flow to watch out for. FPIs will be closely watching this number as most FPIs prefer a macro situation wherein the CAD is trending lower. That is what is looks like for Q3.
• There were be some important international data points that will be tracked by FPIs in the coming week. Apart from the dollar index and US bond yields, the coming week will see two more key data points. The US PCE inflation for February and the third and final GDP estimate for Q4 and for 2024 will be out in the coming week.

For FPIs who were worried about the rates trajectory, the Fed statement this week came as a saving grace. There may be no assurance, but just knowing that the Fed chair is keen to cut rates by 75 bps in 2024 is a good feeling for FPIs.